EIS investments are not the only method of investment to take advantage of BPR. Another option to consider is investing in the Alternative Investment Market (Aim).
Investors should be aware of higher levels of volatility within Aim and its capacity for large falls in value in times of stress in equity markets. The fact that there is a listed price for Aim stocks does provide a higher degree of liquidity, particularly when the market is rising. It can also be argued that the Aim market has reached a greater level of maturity given the companies trading on it and many product providers offer collective portfolios of Aim stocks, with initial investments from £15,000.
Some investment managers operate investments in unquoted companies carrying out a BPR-qualifying trade. These can offer a lower level of volatility and potentially more predictable returns.
Product providers offer many options in this space but there are some considerations financial planners should bear in mind – principally, what the underlying businesses are, the transparency of the structure and how much the underlying costs to the investor might be.
Tax planning is a complex and sometimes emotive subject. These strategies are just some of the avenues open to investors and they each have their pros and cons. If a client’s portfolio is of a size that allows it, diversifying across two or more such strategies is always a recommended course of action.
Hugh Rogers is business development director at Puma Investments
EIS market: key figures
£7.7bn
Amount invested in EIS since 1994
30%
The income tax relief available to UK tax payers on EIS investments up to £1m a year
£325,000
The amount at which the inheritance tax nil-rate band is frozen until April 2019
ADVISER VIEWS
Jonothan McColgan, Combined Financial Strategies
Enterprise investment schemes (EIS) are fantastic vehicles for a very niche market of clients who want to achieve 30 per cent income tax relief, defer capital gains tax and benefit from business asset taper relief to save potential inheritance tax (IHT).
However, a number of changes to legislation through the years have reduced these benefits. So demand for EIS has really fallen over the last five years.
I would now only consider using EIS where clients are basic-rate taxpayers with high-risk profiles, as they will get better tax relief at 30 per cent in the EIS, rather than 20 per cent in a pension; where clients need to save income tax from the previous tax year and pension input periods cannot be used to do so; where clients want to have an investment that is exempt from IHT after two years.
