Catch up with the recent video with Alex Game to hear more about the Unicorn AIM IHT & ISA Portfolio Service and their outlook for 2022.

Catch up with Chris Hutchinson, Director & Senior Fund Manager at Unicorn Asset Management discussing the Unicorn AIM VCT and the new £25m Offer for Subscription.

Catch up with Alex Game, Fund Manager & ESG Officer at Unicorn Asset Management who discusses the Unicorn AIM IHT & ISA Portfolio Service at the ‘Q1 2022: VCT & IHT Planning Webinar‘.

• By watching the full recording, you qualify for 1hr Structured CPD Credits. Please email investor-relations@lighttowerpartners.co.uk or call 020 7071 3940 to claim your certificate.

If you have any further questions please get in touch with the email or phone number provided above.

KEY HIGHLIGHTS:

• The AIM performance attribution in 2020
• The attractive opportunities that Unicorn are seeing in the AIM
• Company updates and examples – Frontier Developments and Somero
• Positive outlook for the UK economy and UK equities

If you have any questions please email investor-relations@lighttowerpartners.co.uk or call 020 7071 3940.

For professional clients only.

Find out more about the new £15m offer, the latest updates on the VCT and on the underlying portfolio companies from manager Chris Hutchinson.

For further information, click here or please email investor-relations@lighttowerpartners.co.uk or call 020 7071 3920.

Client signature missing:

If the client isn’t able to print it off, sign and send it back, they can fill in the attached forms online and use DocuSign, which City have confirmed they accept for all our VCTs and e-mail that into ra@city.uk.com

They can then transfer the cash directly to City, using the bank details and reference stated on each app.

IFA signature missing:

If the IFA isn’t able to sign, they can either:

• Also use DocuSign
• Or can be signed by any other advisor or para-planner in the company. The firm will have to include a cover letter using company headed paper saying that this person is authorised to sign on the original IFA’s behalf. When this has all blown over, they can use a Change of Authority letter to change the IFA attached to this investment

Please note the below for Pembroke VCT applications:

As you may be aware lots of our valued IFA clients are now working remotely and in situations where adding their own signature to the application form is made difficult. To combat this we have agreed with Howard Kennedy our sponsors that scanned application forms with the investors signature can be emailed to ra@city.uk.com without having the IFA sign the form as long as the IFA includes the following statement in their email:

“I/We confirm agreement to the terms set out in Section 11 of the Application Form, as set out in the prospectus for Pembroke VCT plc dated 2 September 2019.”

If you have any further queries, please don’t hesitate to contact the team by email or by calling 020 7071 3920.

Process for completing your application electronically for the Unicorn AIM VCT

We have had several questions in light of current working practice as to how investors can still access the Unicorn AIM VCT this year without needing to fill in hard copies and get wet ink signatures and we are pleased to say the process is simple:

Step 1:

The IFA should fill in the interactive application form for Unicorn AIM VCT as usual and send to the client to check.

Click here for an interactive application form.

Step 2:

​The client should confirm their details and return the application form to the adviser with their name and date sent back to the adviser on the form (this can be typed into the interactive application form).

Step 3:

The adviser should then return the completed form to ra@city.uk.com with the email title Unicorn AIM VCT.

Step 4:

The client should then make arrangement for the money detailed in the application form to be sent to City Partnership either by way of electronic transfer or by cheque.

If you have any further queries, please don’t hesitate to contact the team by email or by calling 020 7071 3920.

We recently recorded a podcast with Pembroke VCT Managing Director Andrew Wolfson, Investment Director Simon Porter, and Portfolio Director Will Goodwin.

The podcast is an excellent opportunity for those new to the VCT to learn more about their investment philosophy and how the team work together to identify new opportunities.

Click here for the full recording.

For further information on the VCT please send us an email or call us on 020 7071 3920.

We recently recorded a conference call with Paul Mattick, Director of Mercia Fund Managers, on the Mercia EIS.

The call gives an overview of the EIS and an update on their current position.

For further information on the Mercia EIS please send us an email or call us on 020 7071 3920.

Lawrence Gosling recently hosted a call with Head of Tax Efficient Products at LightTower Partner, Jack Rose about VCT’s ahead of the upcoming VCT masterclasses that Jack will be leading around the country.

In the call Jack highlights the changes to tax planning, the risks associated with them, pensions and the potential for limited VCT capacity in the coming tax year.

Click here to listen to the call

For more information on LightTower Partner’s range of tax efficient products please click here or call 020 7071 3920.

Click the link below to listen to the latest conference call recording about Unicorn’s £30m top-up offer for their awarding-winning AIM VCT.

The closing date for the offer has recently been extended and will now close by 17 November 2017 or earlier, depending on available capacity.

To find out more about the VCT, please click here or call our team on 020 7071 3940.

Click the link below to listen to a recent conference call recording about Unicorn’s new £30m top-up offer for their awarding-winning AIM VCT.

The Unicorn team manages over £1 billion of assets, across a range of Funds, of which around £300 million is specifically invested in AIM-listed companies*. The Unicorn team therefore bring their considerable experience and success in small cap investing to this offering.

To find out more about the new share offer, please click here or call our team on 020 7071 3940.

*Source: Unicorn Asset Management as at 30/06/17.

Jack Rose who is Head of Tax Efficient Products at LGBR runs through the first and second quarters, highlighting what advisers should do when and how best to avoid the end of tax-year rush.

Click here to read the full post on Professional Adviser.

For more information on the range of tax products that LGBR Capital has to offer please click here or call 020 3195 7100.

With a background of ever-growing IHT receipts, investing in AIM through an ISA can be a powerful planning option for the right person, LGBR Capital’s Jack Rose, offers investors and their advisers 10 tips on the subject.

Click here to read the article

For more information on the range of LGBR Capital’s tax efficient products please click here or call 020 3195 7100.

In the most recent tax planning article with Professional Adviser, LGBR Capitals Jack Rose discusses how to spot a good VCT manager and what you need to look for before investing.

Click here to see the whole article

For more information on LGBR Capitals range of tax efficient products please click here or call 020 7071 3940.

As Venture Capital Trusts turn 21, LGBR Capital’s Jack Rose explains to FT Adviser what they do, the tax benefits that they offer to investors and how they can sit in a investor’s portfolio.

Click here to see the whole article

For more information on the range of tax efficient products that LGBR Capital have to offer please click here or 020 3195 7071.

In the latest in his series of tax-planning articles for Professional Adviser, Jack Rose (Head of Tax Products at LGBR Capital) offers an introduction to the Enterprise Investment Scheme, looking at how it works, how to access it and the types of client it could suit.

The Enterprise Investment Scheme (EIS) is a government initiative launched in 1994, designed to encourage investment by individuals into early-stage companies as an alternative source of funding to more traditional sources of capital.

To balance the increased risk of investing in smaller companies, there are some attractive tax breaks offered by the government. Although more than 20 years old, the EIS heritage actually stretches back to 1981 through its original guise of the Business Start-up Scheme (‘BSUS’) and then latterly the Business Expansion Scheme (‘BES’) in 1983, before finally becoming as we know it as today in 1994.

Since then, more than 24,500 companies have received investment through the scheme and more than £14bn has been raised. Last year alone, according to the April 2016 HMRC & National Statistics Report, more than £1.6bn was raised under the EIS scheme.

Unlisted or AIM-listed companies can apply to HMRC to become “EIS qualifying”, which requires meeting several investment criteria, including:
* They must undertake a “qualifying trade” – certain trades, such as dealing in securities/financial instruments and forestry and farming are excluded;
* They must have fewer than 250 employees, unless it is a ‘knowledge intensive’ business;
* The company must not be controlled by another company;
* The company’s gross assets must not exceed £15m before the investment, or £16m post investment; and
* An investee company cannot be older than seven years, unless it is a knowledge intensive business.

It is also important to note that, despite often being referred to as ‘EIS funds’, they are not collective investment schemes. An investor in an EIS will be the owner of shares in its underlying companies, rather than owning shares or units in a fund.

Given the investment criteria above, EIS companies are smaller and less liquid than larger, listed investments. To compensate investors for the extra risk taken, EIS offer a number of generous tax incentives, including:
* 30% upfront income tax relief (subject to £1m investment in any tax year and provided shares are held for a minimum of three years);
* 100% inheritance tax relief after two years;
* 100% capital gains deferral for the life of the investment;
* Tax-free growth; and
* Loss relief.

Ways To Access EIS Companies

Investors can invest in single EIS companies or an EIS ‘fund’. The reason for the inverted commas is that, despite the name, an EIS ‘fund’ is structured as a discretionary management service in which a manager with expertise in unquoted companies will use their knowledge to select a portfolio of EIS-qualifying companies.

Within each of these categories there is a multitude of different investment strategies covering multiple sectors:

* Single EIS company: Investment is made directly into just one EIS company, meaning investors take on the risks/rewards of the company, which lacks diversification. There is, however, often more clarity on the company’s investment objectives and the timings on the EIS tax certificates.

* EIS portfolio service: The asset manager invests into a basket of what they believe to be robust EIS-qualifying companies, usually under a discretionary management agreement with the investor. They are usually ‘evergreen’ – meaning they are always open for investment. Each client portfolio can be slightly different, depending on the timing of investment, and is usually made up of between five and 10 underlying companies. Tax relief on cash is available only from the date of investment into each underlying EIS company, however, not the date of the initial investment into the service.

* EIS funds: These vary in structure – for instance they can be under a discretionary management agreement or structured as an alternative investment fund. The asset manager invests into a basket of investee companies that fit the fund’s investment mandate. The fund will target a specific amount of capital and will close once it reaches capacity. The number of investments will vary within the fund, depending on the investment criteria. As with the portfolio service, tax relief on the investment is available only from the date of investment into each underlying EIS company.

* Approved EIS funds: These are like the EIS funds mentioned above – with the addition that the fund has received advanced assurance from HMRC that it will qualify for EIS status before an investor’s investments are made. The manager must invest 90% of the money within 12 months of raising capital to qualify but it does ensure EIS tax relief will be on the full amount at the initial date of investment into the approved fund.

For What Types Of Client Are EIS Suitable?

First, while it is important to consider the tax-planning implications for a client, to use the ever popular tax cliché – ‘the tax tail should not wag the investment dog’. EIS should be considered on their investment merits rather than simply as a way of accessing tax reliefs. Given their focus on smaller, less liquid companies and therefore their increased risk, EIS will not be suitable for every client.

It is also important to mention EIS legislation has been through a period of transition and change over the last year or two, which has altered the landscape considerably. The removal of energy-generating assets, such as solar, and the seven year rule have restricted and tightened what investment managers are able to invest in. This has affected managers’ deal flow and, correspondingly, the products available in the market for investors.

For financial advisers looking to recommend EIS investments, it is important to research both the specific strategy and the wider market thoroughly. There are a number of independent sources such as The Tax Efficient Review, The Tax Shelter Report and MiCap, which provide a lot of useful research and information in this regard.

The 30% upfront tax relief makes EIS attractive for clients looking to offset a large income tax liability. The maximum that can be claimed is £300,000 in any one tax year.

For those who have made a capital gain that is taxable, this can be deferred by investing the gain in an EIS. This will be deferred for the duration of the EIS investment. The capital gain liability can be from three years prior, or one year post the EIS investment. It should, however, be noted this is the date from investment into qualifying EIS companies – something to watch for when using an EIS Service.

Since EIS also qualifies for 100% inheritance tax exemption after two years, it can also play a role in clients’ estate planning. If an investor holds the EIS investment at the time of death, the deferred capital gains liability is also removed along with the investment being zero-rated for inheritance tax.

Jack Rose is head of tax products at LGBR Capital

Click here to read the whole article.

For further information on LGBR’s range of tax products, please click here or contact our team by emailing info@lighttowerpartners.co.uk or by calling us on 020 3195 7100.

Consider investment merits first, then tax.

VCTs turned 21 this year but how many advisers are offering them the key to the door of client portfolios? In the latest in his series of tax-planning articles, Jack Rose takes a closer look at the product.

In the first of a new series of tax-planning articles for Professional Adviser, Jack Rose puts the case for tax-advantaged investments such as enterprise investment schemes and venture capital trusts

Enterprise investment schemes (EISs), venture capital trusts (VCTs) and business relief products are by no means new in the market place. Business relief – which until recently was known as Business Property Relief or ‘BPR’ – was first introduced in the 1976 Finance Act. For their part, EISs replaced the old Business Expansion Schemes in 1994 while VCTs were introduced in 1995.

While figures for assets raised in business relief schemes are hard to come by, the last tax year saw more than £2bn raised across EISs and VCTs. According to HMRC and AIC data respectively, since inception, EISs have attracted more than £14bn and VCTs more than £5.6bn into the UK small and medium-sized enterprise (SME) sector.

Despite all three structures having an established market with a 20-year-plus track record – and even though recent changes in both government legislation and pension rules have made the investment case even more compelling – many financial advisers still do not include them in their tax-planning arsenal.

The introduction of the so-called ‘GAARs’ (general anti-abuse rules) and ‘DOTAS’ (disclosures of tax avoidance schemes) regimes has been described as the ‘kiss of death’ for aggressive tax avoidance schemes – as demonstrated by a number of high-profile cases in the tabloids over recent years.

This, in combination with the Retail Distribution Review’s ‘whole of market’ legislation, is now leading many advisers to look towards government-approved EISs, VCTs and business relief products for their tax-planning needs.

Why Does The Government Give Tax Breaks?

EISs, VCTs and business relief each offer a number of distinct tax incentives allowing them to fulfil different requirements in an investor’s portfolio. VCTs, for example, offer tax-free dividends, meaning they may be more suitable to an investor looking to maximise income.

A golden rule of investment, however, is that you do not get anything for free. The government’s generous tax incentives associated with these vehicles are designed to offset the risk of investing in smaller, unquoted or AIM-listed companies. Furthermore, investments must meet certain criteria – both at the investor level (such as minimum holding periods to qualify) and the underlying investee company level (such as a maximum revenue size or number of staff).

The increased risk nature of these strategies means they are not suitable for everybody. For the right investor, though, they can form an important and complementary part of their overall portfolio.

The Catalysts Behind A Growing Market

Aside from the changes in government legislation outlined above, there are a number of other factors driving the growth in the market.

First, changes in pension rules – particularly, restricting annual contributions for additional-rate taxpayers and reducing lifetime contributions to £1m – have restricted the tax-planning options for high earners, pushing advisers towards alternative and complimentary pension planning investments, and VCTs in particular.

The tax-free dividends offered by VCTs, alongside no capital gains tax on gains, make them an attractive alternative source of tax-free income, which can complement a traditional pension portfolio.

Second, the dynamics for SME asset-raising through EIS and VCT structures continue to be favourable. The best part of a decade on from the 2008 financial crisis, the market for SME funding remains well below pre-2008 levels. With traditional sources of funding difficult to secure, demand for funding via EIS and VCTs far outstretches supply. This has created a positive environment for EIS and VCT managers with a number of potential deals in which to deploy new cash.

Finally, inheritance tax (IHT) continues to be an ever-growing problem for advisers and their clients, exacerbated by rising property prices. The result is that a record number of people’s estates are due to fall outside the current nil-rate band of £325,000.

Even with the addition of the main residence nil-rate band that is due to kick in from next April, the Office for Budget Responsibility forecasts IHT revenues are expected to rise by nearly 11% a year for the next four years – and to the highest level as a share of the UK economy since the 1970s. Last year, HMRC took a record £4.6bn from IHT receipts and this is forecast to rise to almost £5bn for this current tax year.

With the nil-rate band remaining at its current level until 2020/21, business relief strategies offer a simple way for investors to reduce their IHT liabilities after just two years. Furthermore, such strategies offer a flexibility, control and timescale that traditional estate planning options, such as gifting or trusts, often cannot.

Conclusion

There are a diverse range of EIS, VCT and business relief products and managers available across multiple investment strategies and asset classes. The markets for each of these tax-efficient structures is long-established and provides billions of pounds in vital investment each year into the UK SME sector.

Each structure provides a different range of tax-planning benefits, which can be tailored to the client’s investment objective. These structures can form a valuable part of an adviser’s tax-planning arsenal – and demand is only set to grow.

In future articles, we will examine EIS, VCTs and business relief strategies in further detail, including their key features, how best to use them in a client’s portfolio and what to look for in a good manager.

Jack Rose is head of tax products at LGBR Capital

Click here to see the whole article

For more information on LGBR Capitals range of tax products please click here or call 020 3195 7100.

We are running a series of AIM Masterclasses across the UK in the upcoming months. For more information or to register, please click here or call our team on 020 3195 7100. 

Jack Rose, who is head of our tax products here at LGBR, has written a blog for YourMoney.com, addressing the potential risk of IHT bubbles on the AIM market. This is in response to the fast paced growth and attraction the AIM market has seen, especially for inheritance tax mitigation purposes.

Click here to read the full blog post

Please click here to more information on our tax products or feel free to call our tax team on 020 3195 7100.

LGBR Business Development Director, Jack Rose speaks to Professional Adviser about the dip in VCT fund raising for the 2015/15 tax year and outlook for the year ahead.

Click here to view the whole article

For more details on LGBR’s range of tax products please click here or call 020 3195 7100.

Our LGBR Business Development Director of our tax team, Jack Rose is featured on an article by Investment Week based on rule change effects announced last year which bring to an end tax relief for renewables.

Click here to read the whole article

LGBR Capital – which works in partnership with investment managers at the forefront of the sector to develop and distribute tax efficient products to UK investment intermediaries – says its new report has revealed that changes to the rules guiding tax-advantaged investing, combined with recent government moves to bring to an end tax relief for renewables, will see the sector turn to earlier-stage companies, according to VCT and EIS managers and commentators.

The new rules announced in the summer budget* alongside the final ending of the energy investment opportunity announced in the March budget, mean that funds and investors across VCTs, EIS, and SEIS will be forced to move up the risk scale to find companies to invest in.

Quoted in the report – ‘Efficiency savings: adjusting to the new tax-advantaged investment landscape’ – Chris Hutchinson, director and senior fund manager at Unicorn Asset Management said that because of the new rules “inevitably we will be looking at slightly earlier-stage businesses than has been the case historically”.

Tax-advantaged balancing act

Jack Rose, business development director at LGBR, points out that the tax-advantaged balancing act should be viewed as a see-saw between the investment managers and the government, with the latter attempting to cajole investors into bridging the finance gap that exists for SMEs while at the same time the managers seek to trim risk as much as possible.

“All legislation in this area is effectively a process by which the government of the day subtly – or sometimes not so subtly – shifts the balance of the rules while the managers will always work within them to try and find the best investment for their clients,” he says.

In the VCT arena, the new rules were deemed to have the greatest effect in the generalist sector where fund managers have been more reliant on MBOs. But fears that fund-raises across the sector would fall well short of last year appear to have been overblown, as more recent news from other VCT managers suggests that the figure for cash raised will come somewhere close to last year’s figure of £429m.

Risk reward – raising capital to grow

It was the tax relief that lay behind the enthusiasm for renewables and which ultimately proved to be too successful in drawing in investors’ cash. Ian Battersby, business development director at SME specialists Seneca Partners, says the problems the government had with renewables was foreseeable. “It’s not difficult to see why HMRC have removed them from eligibility criteria as their clear direction with EIS reliefs is to ensure they are targeted at companies seeking to raise capital in order to grow,” he says.

Nervousness regarding how investors should view tax-advantaged investment is common to the manager and commentators as much as it is to the government and the tax authorities. “HMRC are clear in not wanting to see EIS used as a tax mitigation tool,” says Battersby. “The tax reliefs are there for investors who are willing to take the heightened risk of providing capital to help companies to grow.”

“We do not focus on the tax breaks,” says Hutchinson from Unicorn. “If you look at a fund like ours with £130m of assets today it has all the hallmarks of a mainstream UK smaller companies investment trust, it just happens to be a VCT with all the tax advantages associated with that. But it’s sold on its investment merit not on the tax advantages.”

A more settled outlook

The managers and advisors also agreed that the sector can likely enjoy a period of stability for the foreseeable future. “The industry will need some time to adapt to the latest changes and so we’d be surprised if further significant changes were proposed in the short- to medium-term,” says Sarah Wadham, director general of the EIS Association. “Both the EIS and VCT industry continue to engage with the Treasury, HMRC and policymakers both in the in the UK and the EU to ensure the schemes work as effectively as possible.”

Click here to see the full report

About the report

Efficiency savings: adjusting to the new tax-advantaged investment landscape has been commissioned by LGBR Capital to delve into the issues raised by recent regulatory developments with regard to tax-efficient investments. Its author, Scott Longley, talks to market participants and commentators to gauge opinion of what these specific measures mean for the industry and asks how they will affect the investment decisions throughout the sector. It also looks forward to ask whether we have reached a level of regulatory stability and questions what this means for the funds and their investors.

* The new rules announced in the summer budget mean that companies that receive tax-efficient investment must in most cases be less than seven years’ old, can receive no more than £12m from tax-advantaged sources in their lifetime, and funds can no longer back management buyouts (MBOs) and some other asset-backed deals.

NOTES TO EDITORS:

LGBR Capital

LGBR Capital, which was founded in 2012, works in partnership with experienced, quality investment managers to develop and distribute financial products to investment intermediaries in the UK. Our tax division brings advisers a range of solutions from investment managers at the forefront of the sector, with capability covering VCT, EIS, SEIS, BPR and IHT.

Scott Longley

The report’s author, Scott Longley, has been a journalist covering the personal finance industry and other industry sectors since the early noughties. He has worked for a number of publications including Bloomberg Money and Investment Week and writes regularly on the tax-advantaged investment sector.

Efficiency savings: adjusting to the new tax-advantaged investment landscape has been commissioned by LGBR Capital to delve into the issues raised by recent regulatory developments with regard to tax-efficient investments. Its author, Scott Longley, talks to market participants and commentators to gauge opinion of what these specific measures mean for the industry and asks how they will affect the investment decisions throughout the sector. It also looks forward to ask whether we have reached a level of regulatory stability and questions what this means for the funds and their investors.

Click here to view the report

For more information on LGBR Capital’s range of tax efficient products please click here or call 020 3195 7100.

Find a Wealth Manager has recently published an article by Jack Rose, Business Development Director for Tax Products at LGBR Capital on why investors should look at EIS, VCTs and BPR.

Click here to view the whole article

To find out more about tax efficient investing please click here or call 020 3195 7100.

Jack Rose, our Business Development Director for our Tax Products, writes a clear article on FindAWealthManager.com exploring all about VCTs, the benefits and the role of incorporating one into an investor’s portfolio.

“Venture Capital Trusts offer a raft of attractive reliefs which higher-rate taxpayers cannot afford to ignore” 

Click here to read the full article

For more information on VCTs please email LGBR Capital or call 020 3195 7100

Although the full impact of HMRC’s recent VCT rule changes will not become clear until Royal Assent is obtained (expected early November) at this stage it looks likely that VCTs may have to alter (to a greater or lesser degree depending on their investment strategy) how they source and select investments. The most affected would seem to be those VCTs that concentrate on management buy-outs (MBOs). As a result, we are likely to see fewer VCTs coming out with offers this tax year and many VCTs waiting until after Royal Ascent to make a decision, which means their offers may not open until early 2016.

Since 2015/16 looks set to be a shorter VCT season with fewer participants, it would seem highly unlikely that funds raised will reach anywhere close to the £429m raised last year (which was the largest amount raised since 2005/06)*. This is a dilemma for advisers as supply is reducing just at a time when other HMRC rule changes, such as the lifetime cap on pension contributions, has strongly increased client demand for tax-efficient investment products.

So until we get clarity on the new VCT rules, what can advisers do in the meantime?

A potential alternative are Enterprise Investment Schemes (EIS). EIS were created by the UK government on a very similar premise to VCTs – to provide funding to UK SME businesses – and, as such, EIS have many of the benefits of VCTs, including: 30% upfront income tax relief (three year minimum holding period for EIS vs. five years for VCTs) and no capital gains upon realisation.

EIS also have some added benefits not available to VCTs, including: 100% IHT relief for EIS investments after only two years (through Business Property Relief) and the ability to carry back the 30% income tax relief to the previous tax year from which the investment is made.

However, there are differences – most notably the fact that rules surrounding the type and size of companies that qualify for EIS mean that they tend to focus on smaller, riskier companies compared to VCTs. Further differences include the fact that VCTs are listed on the London Stock Exchange whereas EIS are not, meaning a much less liquid and obvious secondary market for EIS. As such, advisers will need to make sure that their clients are suitable for the level of risk associated with EIS investments.

What might surprise advisers is that assets into EIS last tax year more than doubled those into VCTs (over £1bn raised**). In such an established market, there is ample choice for advisers looking for a diverse number of EIS propositions, whether by manager or investment strategy. Therefore, for the right client, they can provide advisers with a viable alternative to VCTs during the current rule uncertainty and beyond…

* Source: The AIC – http://www.theaic.co.uk/

**Source: National Statistics – HM Revenue & Customs – EIS and SEIS Commentary Note – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/448308/July_2015_Commentary_EIS_SEIS_Official_Statistics.pdf

This communication has been issued by LGBR Capital LLP, Candlewick House, 120 Cannon Street, EC4N 6AS. LGBR Capital LLP is an appointed representative of Mirabella Advisers LLP, which is authorised and regulated by the Financial Conduct Authority. The document is intended to be communicated solely to persons that fall within the FCA Classification of ‘Professional Client’.

This document does not constitute a recommendation, or an offer to buy or sell any security or fund, and is not intended to substitute the offering documents or prospectus of any fund. Venture Capital Trusts (“VCT”), Enterprise Investment Schemes (“EIS”) and IHT mitigation service are relatively complex products with significant performance and liquidity risks. Your capital is at risk if you invest in a VCT, EIS or IHT mitigation service and you may lose some or all of your money invested. Any decision to invest in a VCT, EIS or IHT mitigation service should be made solely by reference to, and strictly in accordance with, the information, terms and conditions contained in the Prospectus and Application Form. Before deciding to invest, investors should carefully consider the product’s investment objectives, risks and expenses and other information as set out in the Prospectus and Application Form.

The statements and opinions set out in this document are made as of the date of publication, and may not be applicable thereafter. Opinions are based on our analysis of data that we believe to be objective and reliable; however we accept no liability in respect of its completeness or accuracy.
Rates of tax, tax benefits and allowances are based on current legislation and HMRC practice and depend on personal circumstance. These may change and are not guaranteed. Past performance is not a guide to future performance; the value of an investment and income from it can go down as well as up. Prospective investors are advised to consult their own professional advisers before contemplating any investment. No representation or warranty expressed or implied is made or given by any person as to the accuracy or completeness of the information contained in this email and no responsibility or liability is accepted for any such information. This material may not be distributed, published or reproduced in whole or in part.

Background

Only launched in 2012, Seed Enterprise Investment Scheme (“SEIS”) is the newest addition to the government’s range of schemes that offer tax incentives to investors in order to encourage fund raising into smaller, entrepreneurial UK companies.

Whilst the SEIS structure has not been around long, it is very similar to its bigger brother the Enterprise Investment Scheme (“EIS”), which has been around for over 10 years and has attracted £10.7bn (most recent data 2012/13 tax year) of assets.

As its name suggests, the main difference between an SEIS and EIS is that SEIS rules restrict the size of qualifying companies to very early stage, “start up” businesses. Because of the extra risk associated with very early stage companies, the tax incentives for SEIS companies are also more generous than with EIS companies.

Since their introduction, the number of SEIS companies has been growing  at an increasing pace, with over 1,100 companies receiving investment to the end of 2012/13 tax year, totalling £80m  (Source: HMRC & National Statistics Report Dec 2014). [DAN: These stats are only for first year of SEIS 12/13.  £80m first year but grown significantly since although no stats to back up as 12/13 is most recent until Dec15.]

How they work

The rules surround SEIS companies, how they qualify and what they can invest in are broadly similar in philosophy to the rules surrounding EIS companies. [Click here to read my previous article on EIS and how they work]. However, there are some fundamental differences with SEIS companies, including:

• The Small Companies Enterprise Centre (SCEC) decides if a company and share issue qualify and will continue to monitor them to ensure they continue to meet the requirements
• An SEIS qualifying company can raise a maximum of £150,000 under the scheme
• An SEIS company cannot have more than 25 employees, cannot be more than 2 years old and cannot have more than £200,000 assets
• Like EIS companies, certain trades are excluded, including forestry, financial securities among others

SEIS Tax Benefits

Once again these are broadly similar to EIS but with a noticeable increase in the amount of upfront income tax relief offered from 30% to 50%. The enhanced relief reflects the increased risk of investing in very early stage companies.

• 50% income tax relief (subject to a 3 year minimum holding period and a maximum of £100,000 investment in any one year)
• 100% inheritance tax relief after two years
• Capital gains reinvestment relief (if you sold an asset and reinvested all or part of the amount of the gain in shares which qualify for SEIS, half the amount reinvested may be exempted from CGT)
• Profits from the sale of an SEIS investment are completely free of CGT
• Loss relief is available to offset against earnings, unique to SEIS and EIS.  The unrelieved portion can be offset at the marginal band of the investor. Therefore a 45% tax payer would have a further 22.5% of the investment returned in the event of a liquidation.

Ways to Access SEIS 

SEIS has benefitted enormously from the ever increasing popularity of equity crowd-funding websites. These platforms offer access for private individuals to invest in SEIS opportunities in a self-styled ‘Dragon’s Den’. Unlike EIS and VCT, much of the capital raised has been raised through private investors directly through either the equity crowd funding, or a ‘friends and family’ approach.

Market leaders such as CrowdCube offer an efficient solution to these retail investors, whereas alternatives such as the Seed EIS Platform offer a single company investment solution for the advised market.  A combination of factors including the immaturity of the marketplace and increased risk has led to a slower uptake from the adviser community, it remains to be seen if this will change as the SEIS marketplace develops.

Daniel Rodwell, CEO of Seed EIS Platform is positive on the outlook; “Seed EIS continues to gather momentum as the market matures, with a growing number of exciting new businesses benefitting from the scheme.  The generous tax reliefs mitigate investment risk significantly, increasing access to seed capital and driving growth and innovation within the UK.  Seed EIS Platform enables advisors to offer SEIS and EIS single company solutions to clients, investing alongside our network of sophisticated early stage investors.”

What type of clients are suitable?

If it is true that, as mentioned in my previous article, EIS is not suitable for every client, this is doubly so for SEIS. Due to the investment focus on very early stage companies then the reality for investment in SEIS is that really no one should be investing money they cannot afford to lose.

Due to the lack of liquidity and increased risk of company’s failing in their fledging stages, investments should be viewed as a long-term investment ‘punt’ rather than core part of one’s investment portfolio.

For those clients that can accept this level of risk and have the disposable capital, and like the notion of supporting young British companies with the opportunity of finding the next ‘big’ thing then SEIS can offer a good opportunity to gain access to this area of the market.

Background

The UK government established Venture Capital Trusts (VCTs) almost 20 years ago to encourage investment into smaller UK businesses. The generous tax benefits offered compensate for the increased risk associated with investing in smaller, less liquid companies.

Since their introduction in 1995 to the end of the 2013/14 tax year, VCTs have raised over £5.4bn according to the AIC, providing important support and funding to the UK’s SME sector.

Research from the AIC also suggests historical performance has been strong. The average total return for a VCT investment of £100 to 31 December 2014 was £164 over 5 years and £197 over 10 years (Source: AIC).

How VCTs work

In many ways, VCTs are similar to investment trusts but with additional investment rules in order to qualify for tax reliefs. VCTs are plcs and are listed on the London Stock Exchange. Investors subscribe for shares in a VCT, which will then look to invest into a portfolio of “qualifying” companies.

There are several investment criteria underlying companies must meet to be VCT qualifying including, but not limited to:

• Companies must be unquoted or AIM listed
• The maximum value of a company’s Gross Assets (before VCT investment) is £15m
• The company cannot have more than 250 employees (before VCT investment)

At least 70% of a VCT’s cash must be invested in qualifying companies within 3 years. The remaining 30% can be invested in non-qualifying investments, such as cash, listed equities, debt and investment funds.

Because of the numerous rules to which VCTs must adhere in order to qualify for tax breaks, it is important to choose an experienced manager. We will be going into more detail on what to look for in a VCT manager in next week’s article.

Tax benefits

VCTs have a number of attractive tax benefits for investors. Initial investments can qualify for 30% income tax relief, subject to a maximum of £200k per investor and a five year minimum holding period. Furthermore, dividends paid are tax free and there is no capital gains tax (CGT) to pay when the VCT is sold.

Types of VCT

All VCTs invest into smaller UK companies however the market tends to split managers into four main types:

The role of a VCT in an investor’s portfolio

Financial advisers should analyse the VCT market thoroughly before recommending them. The AIC website provides a lot of useful research and information in this regard.

What type of clients are VCTs suitable for? Firstly, VCTs should be considered on their investment merits rather than simply a way of accessing tax reliefs. Given their focus on smaller, less liquid companies, VCTs will not be suitable for every client.

However, for those UK tax payers that can accept a higher level of risk and the minimum holding period of five years, VCTs can play a useful role in their portfolio.

The 30% upfront tax relief makes VCT suitable for clients looking to offset a large income tax liability. VCTs can also provide an option for investors seeking tax free gains, especially if they have already maxed out their ISA and pension contributions for the year.

Furthermore, because they offer tax-free dividends, the majority of VCTs will focus on providing regular income alongside capital gains. As such, VCTs can complement an investor’s income portfolio.

Chris Hutchinson, Manager of the £100m Unicorn AIM VCT comments: “VCTs are sometimes mistakenly considered as being solely focused on achieving returns through capital growth, but in reality many VCTs deliver attractive returns via regular tax-free dividend payments.”

Background – What is IHT?

In its very simplest terms, inheritance tax is the tax paid on an individual’s assets when they pass away. Assets can include money, investments and property – the estate, which is usually passed to, or inherited by the friends and family of the deceased.

Should the value of the ‘estate’ (minus any debts outstanding) be valued in excess of £325,000, otherwise known as the nil rate band (NRB), a 40% tax is levied on the amount in excess of this threshold.

To illustrate the impact of this:

Estate value:       £525,000

NRB:                  £325,000

Taxable Estate:   £200,000 @ 40%

IHT Bill:              £80,000

Married couples are able to pass their estate to each other tax-free on death along with any of their nil rate band not used. This can potentially boost their NRB to £650,000 for the remaining widower.

The Growing Problem

Although once perceived as a problem only for the wealthy, an ever increasing number of people are finding themselves falling into an IHT liability. According to the Office of National Statistics, over £3.4bn was raised during the 13/14 tax year through IHT, £300m than the year before, meaning that IHT receipts have increased a substantial 43% since the 2009/10 tax year.

The well documented rise is asset prices we have seen in recent years, especially across London and the South East where house prices have risen on average 17.8% and 14.4% respectively in the last twelve months. The average house in London now costs on average £406,730 meaning that the number of people set to fall into the IHT trap is only set to increase.

The issue is further exacerbated by the nil rate band currently being frozen at £325,000 until 2018/19. Despite suggestions from various political quarters that the NRB will be increased to potentially £1,000,000 we can only plan for the current situation, not how it may develop in the future. This leads me onto how Business Property Relief (BPR) can help to reduce one’s IHT liability.

The solutions & specifically why look at BPR?

Unlike many of the alternative IHT solutions that are out there such as; gifting, trusts and equity release BPR offers a quicker and more flexible solution to the issue. Unlike trusts and gifting which are often complex and involve relinquishing ownership and control, BPR does not, meaning that should the tax landscape alter and the NRB be raised then any investment decision could potentially be reversed.

What is BPR and how does it work

BPR was introduced back in 1976 in order to allow small family businesses to be passed down from generation to generation without triggering an IHT liability. Since then those companies that qualify for BPR has been expanded, making it an attractive tax planning tool for individuals. Shares in BPR qualifying companies are zero-rated for IHT purposes after only two years, in other words they are outside your estate after 24 months.

There are three ways BPR can be accessed; EIS (which we discussed in our previous article), AIM portfolios (which we’ll discuss next week) and ITS strategies. The latter option are usually discretionary management services structured and managed by investment managers, who give investors access to a one or a number of underlying companies which qualify for BPR. These ITS strategies have grown in popularity in recent years, although often they are regarded as high risk in nature due to their investment being in small unquoted businesses. It is important to look at the risk in the underlying trade of the business and experience of the management team running the service when considering a client’s suitability.

Commenting on how BPR can be used, James Cranmer, a Partner at Triple Point says, “At Triple Point we have been using BPR to help investors mitigate their IHT exposure since 2006. It provides them with the fast and simple solution they are looking for. We can give investors access to businesses active in leasing and infrastructure funding, a popular choice with investors looking for rapid IHT mitigation and capital preservation.”

BPR Benefits

• Speed: Unlike many other forms of estate planning such as trusts and gifting which can take up to seven years, BPR is outside your estate after two years
• Flexibility and Control: As mentioned earlier, because you own the shares you retain control, you can top-up or redeem as you need
• Simplicity: BPR is relatively straightforward, there are no complex legal structures, medicals etc.

BPR’s role for investors

Often for those clients where either there are legal or medical complications BPR can often offer a solution to help reduce an IHT liability. Because an investor owns shares to qualify for BPR it can make it particularly attractive for those clients with Power of Attorney in place as there are no issues with relinquishing control of the assets.

Obviously the speed at which BPR assets can be removed from one’s estate (two years) compared to some other planning ideas such as trusts and gifting (seven years), which can take up to five years longer make it an option for those that need to act more quickly.

As always it is important to consider client’s individual situation when considering BPR. It will not be suitable for all and there is a huge range of differing strategies and ways to access BPR that will work for different clients.

Background

Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCTs) and Business Property Relief (BPR) products are by no means new in the market place. BPR was first introduced in the 1976 Finance Act, EIS replaced the old Business Expansion Schemes in 1994, whilst VCTs were introduced in 1995.

Whilst figures for assets raised in BPR schemes are hard to come by, the last tax year saw £1bn raised across EIS and VCTs. Since their inception EIS have attracted over £10.7bn* and VCTs over £5.4bn** into the UK SME sector.

However, despite all three structures having an established market with a +20 year track record, many financial advisers still do not include them in their tax planning arsenal – even though recent changes in government legislation have made the case for these tax efficient structures even more compelling.

The introduction of GAARs (General Anti-Abuse Rules) and DOTAS (disclosures of tax avoidance schemes) has been described as the ‘kiss of death’ for aggressive tax avoidance schemes, demonstrated by a number of high profile cases in the tabloids over recent years. This is leading many advisers, helped by the new RDR ‘whole of market’ legislation, to look towards government approved EIS, VCTs and BPR for their tax planning needs.

Why the Tax Breaks?

Each of the three structures offer a number of different tax incentives allowing them to fulfil different needs in an investor’s portfolio. For example, VCTs offer tax free dividends to investors meaning they may be more suitable to an investor looking to maximise income.

However, a golden rule of investment is that you don’t get anything for free. The generous tax incentives offered by the government are designed to offset the risk of investing in smaller, unquoted companies. Furthermore, investments into these strategies must meet certain criteria both at the investor level (such as minimum holding periods to qualify) and the underlying investment level (such as a maximum revenue size or number of staff). With the higher risk nature of these strategies, they are not always suitable for every investor but for the relevant client they can form an important part of an investor’s portfolio.

Catalysts Behind the Growing Market

Aside from the changes in government legislation outlined above, there are a number of other factors driving the growth in the market.

Firstly, recent changes in pension rules (lowering the annual and lifetime contributions to £40,000 and £1.25m respectively) combined with the added to take drawdowns (vs. annuities) has meant advisers have a series of alternative pension planning investments to consider, including VCT products in particular. The tax free dividends offered by VCTs make them an attractive alternative source of tax-free income that can complement a traditional pension portfolio.

Secondly, inheritance tax continues to be an ever-growing problem for advisers and their clients, exacerbated in areas such as London and the South East by rising property prices that have continued unabated even post-2008. The result is that a record number of people’s estates are due to fall outside of the current nil rate band of £325,000. Official forecasts suggest that inheritance tax revenues are anticipated to take the highest share of the economy since the 1970s and expected to rise by nearly 11% a year for the next four years, according to the Office for Budget Responsibility.

With the government stating that the nil rate band will remain at the current level until 2018/19, BPR strategies offer a simple way for investors to reduce their IHT liabilities after just two years. Furthermore, BPR strategies offer a flexibility, control and timescale that traditional estate planning options, such as trusts, often cannot.

Lastly, the dynamics for SME asset raising through EIS and VCT structures continue to be favourable. Six years on from the 2008 financial crisis and, despite the more recent economic upturn, the market for SME funding remains well below pre-2008 levels. With traditional sources of funding difficult to secure, demand for funding via EIS and VCTs far outstretches supply. This has created a positive environment for EIS and VCT managers with a number of potential deals in which to deploy new cash.

Conclusion                                                                        

There are a diverse range of EIS, VCTs and BPR products available in what is long-established, multi-billion pound market that provides vital investment into the UK SME sector. Each structure provides a different range of tax planning benefits, which can fulfil a range of clients’ tax planning needs.

In the coming weeks we will examine EIS, VCTs and BPR strategies in further detail, including their key features, how best to utilise them in a client’s portfolio and what to look for in a good manager.

However, until next week it is suffice to say that these structures can form a valuable part of an adviser’s tax planning arsenal, with the market and demand only set to grow.

*Source: HMRC, December 2014  https://www.gov.uk/government/statistics/enterprise-investment-scheme-and-seed-enterprise-investment-scheme-statistics-december-2014

**Source: AIC, April 2013  https://www.theaic.co.uk/aic/news/press-releases/vct-sector-raises-%C2%A3403-million-in-201213-tax-year