As seen in City AM: VCTs and EIS to consider for the end of the tax year
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Tax pressure in Britain is at a 50-year high. Higher earners are feeling the squeeze as many traditional avenues of investing tax-efficiently have been blocked – from pension restrictions to the cuts to buy-to-let tax relief.
What tax-efficient options are left?
Two increasingly popular options for experienced investors are Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS). Both are government-backed schemes designed to incentivise private investment in young and dynamic small companies.
The reward for investors is significant tax reliefs in the short term, with the potential to back the next £1 billion company in the long term. This incentive and potential reward is to counter the higher risks investing in smaller companies entails.
How much tax could you save?
You could get up to 30% income tax relief investing in VCTs and EIS.
Returns are also tax free. In the case of VCTs, these are normally paid as dividends. With EIS you can further benefit from potential inheritance tax relief and could defer capital gains from the sale of other assets.
Annual allowances are generous: £200,000 in VCTs and up to £2 million in EIS. These could be valuable to investors caught by the restrictions on pension contributions. Tax rules can change and tax benefits depend on circumstances.
Where would I consider investing?
Below is a sample of some of our favourite offers for experienced investors: note these are not advice nor a personal recommendation to invest, and we have other offers you might also consider. You should invest after making your own considered view on the merits of the offer.
Octopus Titan VCT
The UK’s largest VCT has a great record of spotting and nurturing rising stars and achieving high-profile exits, including sales to the likes of Amazon, Google and Microsoft.
Zoopla, the first VCT-backed £1bn company, Secret Escapes and graze.com all received funding from Octopus Titan VCT.
Among the UK’s longest-established venture capital trusts, ProVen VCTs have a history of backing fast-growing businesses, often helping them expand internationally, and achieving profitable exits. Two recent examples are Watchfinder, the online marketplace for pre-loved luxury watched, which was sold to Swiss luxury goods group Richemont SA and Chargemaster, the UK's largest electrical car charging firm, which was acquired by BP.
Fuel Ventures EIS Fund
This fund is run by entrepreneur turned investor Mark Pearson, who famously started MyVoucherCodes with £300 and sold it for millions before he was 30. He now gives investee companies hands-on strategic and operational support, to help build their products and services and grow internationally. The current fund focuses mainly on “following the winners”, to use Mark’s words – companies he's previously backed, which he believes show the best promise.
MMC Ventures EIS Fund
One of the UK’s largest tech investors, MMC Ventures has been investing in technology for the past 20 years, way ahead of the curve.
The EIS fund has helped scale up transformative businesses like recipe box delivery company Gousto, mobile transport ticketing system Masabi and intelligent business information platform Signal AI.
An important caveat
Popular offers tend to come and go quickly. If you plan to invest in VCTs or EIS this tax year, the sooner you act, the wider the choice. Leave it a couple of weeks and you might miss out.
The products mentioned are only for high net worth or sophisticated investors. VCTs and EIS invest in small high-risk companies and you should not invest money you cannot afford to lose.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision 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.