Tax-efficient investments

 

Tax-efficient investments are aimed at incentivising private investors to risk capital by investing in early stage growth companies that exhibit the potential for significant investment return.

 

These include Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EISs) and ‘Seed’ Enterprise Investment Schemes (SEIS). The incentives come in the form of income, capital gains and inheritance tax reliefs.

In our view, Tax Efficient Investments are only suitable for individuals who are High Net Worth and financially sophisticated and should only be considered as part of an overall diversified portfolio. While the tax reliefs are undoubtedly attractive, it is essential to assess the quality and nature of the underlying investment proposition.

 

Summary of key features:

* Increased to £2.0m for  ‘Knowledge-Intensive’ businesses

 

Product Offering – Examples

Example products from our research team’s current buy list are detailed below. However you can also see our investment methodology here.

 

1. VCTs

i) High yield:

  • Investment is made into an existing portfolio of around 70 businesses with a net asset value of approximately £400m
  • Experienced manager with a strong track record
  • Technology bias
  • A forecast tax-free dividend yield of 5.5% payable monthly
  • * Likely to close early Feb

 

ii) UK SME:

  • A well-established VCT with significant experience in investing in UK SMEs
  • Track record since 1996, employing over 50 investment and research professionals
  • An expected tax-free dividend yield of 6% payable annually

 

2. EISs

i)  Tech focused:

  • An EIS with greater risk exposure, seeking excess returns through investments in technology companies
  • Focus on larger ‘late stage’ scale up investments of £5m-£10m+ into companies that are scaling up their businesses rather than starting up
  • Extremely strong deal flow and global network (including an office in Silicon Valley)
  • Highest rated EIS by the Tax Efficient Review for the past 5 years

 

ii) Full tax relief EIS:

  • An EIS investing in companies which require capital to scale up their operation, a proven business model and an established management team
  • Capital is deployed within a short-timeframe so tax reliefs can be gained more quickly than nearly all other EISs
  • All fees are paid by the investee company, so the investor gains full tax relief on their investment

 

3. SEIS

i)  Pharmaceutical and biotech:

  • A minimum of three companies will be invested into, providing an element of diversification
  • A focus on companies developing new and unique products and services, with the expectation of significant growth
  • Provider takes a proactive role with all companies and seeks a position on each company’s board to ensure good governance

 

If you would like to speak to an expert on tax efficient investments please contact Christopher Yardley at Christopher.Yardley@strabenshall.co.uk.

 

This document is for information purposes only. It is based on our understanding of current legislation. The taxation treatment may change and investments must typically be held for minimum periods to retain the taxation features noted herein.

Nothing in the document should be construed as financial advice or an invitation to purchase a financial product.

Strabens Hall Limited, D’Arblay House, 16 D’Arblay Street, London, W1F 8EA is authorised and regulated by the Financial Conduct Authority (461795).