Twenty billion reasons to back this bunny
The latest research from the Institute for Fiscal Studies suggests the UK faces twenty years of rising tax. This follows the government’s pledge to boost NHS spending to £20 billion a year and defence secretary Gavin Williamson’s demands for an extra £20 billion.
The money must come from somewhere. High earners could be one target – and it won’t be the first or last time. Wealthy individuals are already starting to feel the squeeze of pension restrictions and other changes. For instance those earning £150,000 or more will have seen their annual pension allowance reduce from £40,000 to as little as £10,000.
The pension lifetime allowance too has reduced from £1.8 million in 2010 to £1.03 million today.
The annual allowance for tax-free dividend income has been cut: anything over £2,000 a year could be taxed at 38.1%.
Higher and additional-rate tax relief on buy-to-let mortgages is soon to be a thing of the past.
So, where can experienced high-net worth and sophisticated investors turn? There are still a few ways left to invest tax-efficiently.
The good news is that many of the options are interesting investments. That’s before you add the generous tax reliefs they attract under EIS. Take our current EIS offers Acamar Films and Firglas for instance.
Acamar Films owns the rights to and co-produces the hit children’s TV show Bing.
Bing is a bunny. If you have young children or grandchildren it’s a name you might recognise. Bing is the second most downloaded show on BBC iPlayer, with over 250 million downloads presumably second only to EastEnders. To finance the next stage of growth Acamar is raising £3 million under the EIS. Wealth Club investors reserved more than £1 million in the first 24 hours the deal was open.
Firglas Ltd is also raising £3 million. Firglas is building two plants to produce algae-based ingredients on a commercial scale.
The team behind it has spent four years developing the process to produce small amounts of algae biomass for fish feed and now it wants to scale up. There is a sizeable, and growing, market – the algae products industry is expected to be worth $3.3 billion by 2022. An institutional investor has already committed (subject to due diligence) £1 million of the £3 million available.
The two investments are very different, but share striking similarities. They both have the potential to go global, in our view. Both are run by highly skilled management teams. Both are the kind of opportunities that retail investors don’t see very often. And both are EIS qualifying investments. So, investors can claim up to 30% income tax relief, defer a capital gain, benefit from protection from inheritance tax and enjoy tax free growth.
If the investment doesn’t work out, losses can be offset against future income or capital gains tax bills. Remember, tax rules can change and tax benefits depend on circumstances. The tax relief is given because EIS investments are riskier than most. They are illiquid and should be held for the long term: you should not invest money you cannot afford to lose.
Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 11 July 2018.