If you’re new to specialist tax-efficient investments like BPR, VCTs and EIS, there are some practical steps you can take before writing your first case.
Many advisers are finding clients need additional ways to invest tax efficiently. It might be a client hits the pension lifetime allowance or is using their full ISA allowance. Or it might be that a client wants to plan for inheritance tax, but is concerned about losing control of assets in their lifetime.
If you’re an adviser with clients who could benefit – and it’s likely you are – but haven’t explored Business Property Relief (BPR), Venture Capital Trusts (VCTs) or Enterprise Investment Schemes (EIS), then now is an ideal time to get up to speed. That’s because key tax allowances are now frozen until at least 2026, so clients may benefit from more options to invest tax efficiently.
The legislation behind these types of investments has been backed by successive governments and offers a variety of tax reliefs (subject to qualifying criteria), designed to encourage investors to support young, growing companies by offering some compensation for the higher investment risks involved.
As part of a carefully planned portfolio, these investments can be extremely useful in planning for a range of clients and discussing them will add value to client reviews. They can also help grow your business, by increasing your assets under management through existing clients, word of mouth referrals and future generations too.
If you’ve not explored these investments, how do you go about it? It might seem daunting, but it’s not as complex as you might think and is similar to writing any other investment business.
Overcoming the ‘fear factor’
Fear of the unknown is a human instinct, so it is understandable many advisers steer away from these investments if they lack knowledge. But it’s a mistake not to learn about them, so you can advise on them if needed.
Mark Greenwood, Director of Compliance Services at The SimplyBiz Group, joined the Octopus Estate Planning Show recently.
He explained: “I would think in most advisers’ client banks there will be clients where tax-efficient investments are quite likely to be appropriate. These aren’t for every client, but advisers should be looking at tax-efficient investments, even if it’s to count them out.”
“Knowledge is everything,” says Mark. “Once advisers get to understand the investments, the fear dissolves.
“Not having the knowledge is not an excuse. It’s far better to have the knowledge, look at it, and decide that actually for this client it’s not the way to go.”
Goal-based risk approach
One of the most common concerns Mark Greenwood hears from advisers is about how to approach risk and suitability.
This is where advisers and clients should understand that it can be okay to have different pots of money at different risk ratings, notwithstanding their overarching attitude to risk.