This month I am going to concentrate on an area of investment which is higher risk in nature, but that can be exciting, rewarding and the catalyst for societal progression.

As soon as investment and taxation are muttered in the same sentence, people jump psychologically to exotic sun-drenched locations and morally questionable individuals – think the ‘Panama Papers’. There’s been wide spread press coverage of high-profile cases, in which large-scale tax avoidance schemes have denied significant sums to the public purse; and it leaves a bitter taste in the mouth!

But this “irregular” financial practice shouldn’t discourage the honest and socially conscious from pursuing tax incentivised investments, in fact quite the opposite. Tax reliefs are offered by HM Government for areas on - in the North they’d say, “you don’t get owt, for nowt” – and many of these incentives are attached to schemes which promote small business, fund Research & Design and/or invest in socially responsible areas (healthcare, renewable energy etc).

The collective expertise within the financial world and the time that can be designated to these niche areas are key factors and economic drivers for the tax incentives offered. These structures have been analysed by governments across the political spectrum and reviewed independently, and the tax advantages have been retained due to the long-term effect on job creation, the environment and ultimately, tax revenues.

The UK is heralded as one of the best places globally to start a business and the inward investment these tax saving schemes generate is part of the reason for this – ASOS and Fever Tree are now household names, but both benefited from early-stage investment through government incentivised schemes. I can’t image a sunny afternoon in the garden without Fever Tree [and local gin]!  

(Note, I can’t imagine a sunny afternoon full stop)  

Venture Capital Trusts form a critical, and expanding, part of this sector and offer several financial planning benefits… There is exposure to significant capital growth from young expanding companies, and this investment principal is at the centre of each proposal. Furthermore, there area number of [huge] VCTs which offer diversification and a consistent tax-free dividend yield.

The due diligence carried out by the venture capitalists and the depth of entrepreneurs which approach them is incredible and the quality of the proposals reflects this.

The schemes standalone, before you consider the significant tax benefits attached…

-         30% up front income tax relief

-         Tax free dividends

-         Tax free growth

The opportunity to hold VCT investments for 5-years (the minimum holding period to qualify for all tax reliefs) before selling-down and reinvesting in an alternative VCT, provides access to tax-relief on tax relief. Imagine a series of five or six VCTs running concurrently; once year-6 is reached and the investments have qualified, you may be able to crystallise the investment and reinvest in an alternative scheme, again benefiting from 30%upfront income tax relief, and the underlying growth opportunities.

VCT can be a useful financial planning tool, providing tax mitigation and yearly liquidity, and the range of options may surprise you, even if you’re a more cautious investor.

An individual’s goals and attitude to risk are crucial whenever they consider investment and saving options, so sitting down face-to-face with an Independent Financial Adviser can be worthwhile. There area wide range of tax efficient opportunities (ISA to SEIS), spanning a range of risk profiles and offering a series of investor benefits, so if you’d like to know a little more, please do not hesitate to contact me.

Rob Cowsill – SW Financial Planning (note the new name and badge!)

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