Brexit: A world of opportunities

The fallout from the Vote Leave referendum victory means there has never been a more appropriate time to consider tax-efficient investments for a number of reasons. Let me outline my reasoning:

Tax planning

In an uncertain world advisers might not be able to provide investors with as much reassurance about projected returns from traditional markets as previously.

Therefore, one of the main areas where advisers can continue to add value to their clients is by astutely managing their tax position. Government tax-efficient investments, such as the Enterprise Investment Scheme, should be considered as part of this planning.

It is likely if the UK does negotiate a new trade deal with the EU, or some associate member role, then the UK will continue to abide by EU State Aid rules

Whether deferring a capital gain, reducing an income tax liability or mitigating inheritance tax, there are numerous opportunities for tax planning using tax-efficient investments.

Uncorrelated investments

As a majority of tax-efficient investments are in unquoted stocks they could offer long-term protection from market volatility.

All investments carry their own inherent investment risk but if you understand the underlying investee companies it could be possible to identify asset-backed opportunities (such as BPR qualifying renewable energy projects) or growth opportunities which aren’t reliant on the UK or EU market.

EIS investments must be held for a minimum of three years, so the need to think long term can also help to reduce investors’ worry about short term factors.

Supporting the UK economy

It is expected that a short/medium-term consequence of leaving the EU will be reduced investment in UK businesses, both the disappearance of EU grants and the expected reduction in overseas investment which was previously contingent on the UK being within the EU.

Therefore, UK companies will need to find more investment from ‘home-grown’ sources. The likes of the Enterprise Investment Scheme may appeal to UK investors looking to support growing UK businesses.

Because of this, it is likely there will be more companies seeking investment via EIS. This could potentially mean an increased volume of stronger investment opportunities.

State Aid

The Enterprise Investment Scheme and Seed Enterprise Investment Scheme are both governed by EU State Aid rules.

It has been mooted by some that once the UK has left the EU, the UK Government will be able to increase the limits on how much companies can raise under EIS and SEIS. This could be great news for such companies and, in particular, enable seed-stage companies to receive funding more quickly.

However, it is likely if the UK does negotiate a new trade deal with the EU, or some associate member role, then the UK will continue to abide by EU State Aid rules but this is worth keeping an eye on as it could mean more established businesses qualify for SEIS or EIS.

Tax-efficient investments are increasingly important for advisers to consider as part of a well balanced portfolio and the post-referendum environment could increase the appetite for advisers and investors.

Advisers shouldn’t rely on investment returns to be their justification of existence to clients; rather they should firstly ensure that clients’ tax positions are managed effectively as that is where advisers can make a real difference to clients without relying on market conditions.

Ian Warwick is managing director at Deepbridge Advisers Limited