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Your client’s key objectives were:
- Investment objective: Income
- Tax objective: Inheritance tax planning
The results:
Unfortunately, there isn’t one solution that could meet both your client’s key tax and investment objectives.
However, we’ve highlighted some options to consider that meet your client’s tax and investment objectives when taken in isolation. You may wish to research these opportunities and consider whether using a combination of these could support your client’s financial planning.
Investment and tax objective | Investment objective | Tax objective |
No solution | Venture Capital Trusts | Business Relief or Enterprise Investment Scheme |
Tax-efficient investments
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.
Points to consider
VCTs were created by the UK government to fund the growth of early-stage companies by encouraging investment into UK high growth small businesses. They’re a long-term investment and clients should be prepared to hold their shares for a minimum of five years, otherwise any tax reliefs claimed will need to be repaid.
This advertisement is not a prospectus. Investors should only subscribe for shares based on information in the prospectus and Key Information Document (KID), which can be obtained from octopusinvestments.com.
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.
Points to consider
An EIS portfolio invests in small early-stage companies. The combination of tax reliefs available makes an EIS-qualifying portfolio a compelling structure through which to target high growth.
Investors must hold shares for a minimum of three years to keep any tax reliefs claimed and should be prepared to hold their shares for significantly longer to allow time for growth and liquidity.
If your client is looking for relief from inheritance tax, please consider the longer time horizons and additional risks that come with EIS investments. In some cases, EIS investments will not be the most suitable option for a client planning for inheritance tax, especially if they wish to target predictable returns.
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, subject to liquidity.
Growth
BR-qualifying investments give investors the opportunity to grow their capital, with a range of products available to suit different appetites.
Points to consider
An inheritance tax service that invests in unquoted Business Relief-qualifying companies selects businesses that are not listed on any stock exchange. These typically target a steady, predictable return.
AIM inheritance tax services invest in Business Relief-qualifying companies that are listed on the AIM market. While they offer the potential for high growth, smaller and unquoted companies can be more volatile than companies listed on the main market of the stock exchange. This includes AIM listed stocks.
An Octopus AIM inheritance Tax ISA is likely to be higher risk than more mainstream stocks and shares ISAs.
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.
VCTs from Octopus
Octopus Apollo VCT
Octopus Titan VCT
Octopus Future Generations VCT
Octopus AIM VCTs
Enterprise Investment Schemes from Octopus
Octopus Ventures Knowledge Intensive EIS Fund
Octopus Ventures EIS Service
Business Relief-qualifying investments from Octopus
Octopus Inheritance Tax Service
A service targeting a steady, predictable return. It has been helping investors pass on more of their wealth since 2007.
Octopus AIM Inheritance Tax Service
Helping investors pass on more of their wealth, while targeting growth by investing in companies listed on the Alternative Investment Market (AIM).
Octopus AIM Inheritance Tax ISA
Investors with large ISA pots can plan for inheritance tax while keeping their wealth in an ISA wrapper.
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