Tax-efficient investments
explained
Learn more about tax-efficient investing and how we can help.
What are tax-efficient investments?
Tax-efficient investments can help you plan for your financial goals, including retirement and passing more of your wealth to loved ones.
These investment opportunities allow you to claim certain tax benefits because you are investing into qualifying companies or investment vehicles.
However, because of their risk profile, the tax-efficient investments we offer aren’t suitable for everyone. We always recommend you seek financial advice before deciding to invest.
What are tax-efficient investments?
You’ll be familiar with pensions and ISAs. These let a client invest up to a certain amount while benefiting from tax relief. Investors can use their annual ISA allowance, for example, and expect to pay no tax on any growth or income.
The principles of the tax-efficient investments we specialise in are similar. They can help investors meet their financial goals, including passing more of their wealth to loved ones. However, because of their risk profile, they won’t be suitable for everyone.
Why are tax-efficient investments important?
Venture Capital Trusts, the Enterprise Investment Scheme, and investments that qualify for Business Property Relief all offer generous tax reliefs.
These reliefs could help you with your tax planning, and they compensate for some of the additional risks of investing in unquoted companies, or those listed on the Alternative Investment Market (AIM). Without this support, smaller companies wouldn’t be able to grow as quickly.
Tax reliefs
Investors can claim tax reliefs to support their financial planning, for example by reducing an income tax liability, creating a tax-free income stream, or helping to plan for inheritance tax.
Opportunity for investment growth
Tax-efficient investments offer the potential to grow your capital, and depending on the specific investment, can meet a range of growth appetites.
Supporting smaller companies
Smaller companies are the lifeblood of the UK economy. Tax-efficient investments provide many of these businesses with the capital they need to grow rapidly, create jobs and stimulate the economy.
Why are tax-efficient investments important?
Venture Capital Trusts, the Enterprise Investment Scheme, and investments that qualify for Business Relief all offer generous tax reliefs.
These reliefs can help investors with their tax planning and they compensate for some of the additional risks of investing in unquoted companies, or those listed on the Alternative Investment Market (AIM). Without this support, smaller companies wouldn’t be able to grow as quickly.
Tax reliefs
Investors can claim tax reliefs to support their financial planning, for example by reducing an income tax liability, creating a tax-free income stream, or helping to plan for inheritance tax.
Opportunity for investment growth
Tax-efficient investments offer the potential for growth and, depending on the specific investment, can meet the needs of a variety of investors.
Supporting smaller companies
Smaller companies are the lifeblood of the UK economy. Tax-efficient investments provide many of these businesses with the capital they need to grow rapidly, create jobs and stimulate the economy.
Which tax-efficient investment is right for my client?
Answer two questions about your client’s investment and tax objectives and we’ll suggest suitable investments.
Risks to bear in mind
Capital at risk
The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
Volatility and liquidity
VCT, smaller and unquoted company shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
Qualification status
Tax reliefs depend on VCTs maintaining their qualifying status or portfolio companies maintaining their BR- or EIS-qualifying status.
Tax treatment
Tax treatment depends on individual circumstances and could change in the future.
Our tax-efficient investments
What is Business Property Relief?
Business Property Relief (BPR) is an established relief that allows certain investments to be left to loved ones free from inheritance tax. Compared to options like gifting, it can offer a faster solution to inheritance tax and doesn’t put capital permanently out of reach.
What are the reasons to invest?
Fast inheritance tax exemption
BPR-qualifying investments can be free from inheritance tax after just two years.
Access and control
Investors retain access to their wealth and can request to sell their shares at any time.
Growth
BPR-qualifying investments give investors the opportunity to grow their capital, with a range of products available to suit different appetites.
What are Venture Capital Trusts
Venture Capital Trusts invest in a diversified portfolio of early-stage companies. Investors benefit from the VCT owning small stakes in a large number of companies across different sectors.
What are the reasons to invest?
Income tax relief
Investors can claim upfront income tax relief equal to 30% of their investment up to the first £200,000 invested each tax year.
Tax-free dividends
The tax-free dividends paid by a VCT can create an additional income.
Diversification
VCTs give investors access to smaller companies they may not otherwise hold.
What is the Enterprise Investment Scheme?
Investors in an EIS portfolio own shares directly in a portfolio of early-stage companies. EIS typically appeals to experienced investors who want to back companies with high growth potential. Investors can claim generous tax reliefs because of the risks involved, which include loss relief when an underlying investment returns less than less than they invested.
What are the reasons to invest?
High growth potential
Access to high-risk opportunities with the potential for high growth.
Tax reliefs
Reliefs include upfront income tax relief, tax-free growth, loss relief, capital gains tax deferral, and inheritance tax relief.
Diversification
Access early-stage companies investors wouldn’t hold in a mainstream investment.
What is Business Relief?
Business Relief (BR) is an established relief that allows certain investments to be left to loved ones free from inheritance tax. Compared to options like gifting, it can offer a faster solution to inheritance tax and doesn’t put capital permanently out of reach.
What are the reasons to invest?
Fast inheritance tax exemption
BR-qualifying investments can be free from inheritance tax after just two years.
Access and control
Investors retain access to their wealth and can request to sell their shares at any time.
Growth
BR-qualifying investments give investors the opportunity to grow their capital, with a range of products available to suit different appetites.
What are Venture Capital Trusts?
Venture Capital Trusts invest in a diversified portfolio of early-stage companies. Investors benefit from the VCT owning small stakes in a large number of companies across different sectors.
What are the reasons to invest?
Income tax relief
Investors can claim upfront income tax relief equal to 30% of their investment up to the first £200,000 invested each tax year.
Tax-free dividends
The tax-free dividends paid by a VCT can create an additional income.
Diversification
VCTs give investors access to smaller companies they may not otherwise hold.
What is the Enterprise Investment Scheme?
Investors in an EIS portfolio own shares directly in a portfolio of early-stage companies. EIS typically appeals to experienced investors who want to back companies with high growth potential. Investors can claim generous tax reliefs because of the risks involved, which include loss relief when an underlying investment returns less than they invested.
What are the reasons to invest?
High growth potential
Access to high-risk opportunities with the potential for high growth.
Tax reliefs
Reliefs include upfront income tax relief, tax-free growth, loss relief, capital gains tax deferral, and inheritance tax relief.
Diversification
Access early-stage companies investors wouldn’t hold in a mainstream investment.
“A growing number of investors could benefit from thinking outside the box when it comes to financial planning. Looking at ways to invest tax-efficiently could make a real difference.”
Jessica Franks, Head of Retail Investment Products
Want to learn more?
Our guides
We have several guides to help you get to grips with tax-efficient investments, inheritance tax and much more.
Clients who could benefit from tax-efficient investments
Tax-efficient investments could help a variety of clients. Watch or read our planning scenarios to help you recommend effective planning strategies.
Carol wants to retain access to her capital
Clients can be reluctant to plan for inheritance tax because they are uncomfortable losing control of their assets, even when they can afford to do so.
David is looking for a high growth investment opportunity
High earning clients with a diverse portfolio of long-term investments may want to invest in exciting, high growth potential opportunities.
Anthony wants to reduce his income tax bill
With a high annual tax bill, and significant pension and ISA investments, higher and additional rate taxpayers can be interested in other ways to invest tax-efficiently.
Want to learn?
Our guides
We have several guides to help you get to grips with tax-efficient investments, inheritance tax and much more.
Our webinars
You’ll find a range of webinars that should cover your needs, from a detailed introduction to tax-efficient investments, to deep dives into our products.