Tax-efficient investment schemes aren’t just for super wealthy

 

Last month’s Budget announced changes to Enterprise Investment Schemes (EIS), raising the investment limit to £2m – but who can invest in them?

From April 2018, the maximum investment limit in enterprise investment schemes will be doubled from £1m to £2m, meaning individual investors can earn as much as £600,000 in tax relief – 30% of the total investment.

EISs were originally set up to help provide funding and support for small to medium-sized enterprises (SMEs) that are considered higher risk, and the new boundaries apply to EISs where at least £1m is invested in knowledge-intensive companies (KICs).

The government believes the move will see an additional £7bn committed to SMEs.

However, in a recent poll by Fairstone, only 8% of the 2,200 investors questioned were aware of tax-efficient schemes such as venture capital trusts (VCTs), while just 4% knew about EIS.

Benefiting businesses – and investors

And with the new investment limit, many investors believe they are only open to those with excessive amounts of spare cash. According to Hugi Clarke, director at Foresight, the increased allowance “gives the impression that the schemes are the preserve of the ultra rich who would make multi-million pound investments”.

Yet this is not the case, as the schemes are becoming more useful to those at the lower end of the wealth spectrum, particularly as the amount of tax-free money that can be taken out of pensions is shrinking.

Some VCTs, for example, have minimum investments as low as £3,000, making them accessible to any level of investor. Many experts predict that as such tax-efficient schemes become more mainstream for investors looking for alternatives for their cash, the more investment they will attract.

Alex Davies, chief executive and founder of Wealth Club, said: “Unexpectedly, this has been a very good Budget for VCT and EIS investors. It rewards entrepreneurial companies and investors who are prepared to take some risk to support British business.

“With all the changes to pensions beginning to bite, this type of investment is only going to grow in popularity.”

Read about the pros and cons of real estate investment trusts (REITs) here.

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Tax-efficient investment schemes aren’t just for super wealthy

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