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Advising on VCT and EIS for tax planning

This article is part of
Guide to EIS and VCT investment

Explaining reliefs

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George Bull, senior tax partner for RSM UK, says there is more to consider than simply a tax-effective mechanism for old age, however.

He explains: “Whether an investor wishes to use EIS for IHT mitigation depends on a range of personal circumstances, including attitude to risk, availabilty of funds and recognition that tax relief may come at the expense of the full amount invested if a company fails.”

As Paul Sheehan, investment manager for WHIreland, says: “As with any higher-risk investment, it is vital to ensure clients understand the risks as well as the benefits.

“A suitability assessment should be undertaken before constructing an EIS portfolio for a client.”

So are VCTs and EIS great tax planning tools, but too complicated and esoteric to be within reach for the majority of retail investors? Not according to Mazars’ Mark Brownridge, who is soon to become director general of the EISA.

“These aren’t necessarily difficult to explain to clients, and lots of information on EIS and VCTs is available, including on the EIS Association website”, he says.

“The difficulty arises in explaining the risk/reward and getting potential investors comfortable and setting their expectations arond capacity for loss and returns”.

Calculus Capital’s John Glencross agrees, adding: “Some of the rules can seem complicated to those not acquainted with them, but suitably qualified advisers should be able to understand and explain them to clients without any problems.”