When it comes to investing in enterprise investment scheme (EIS), venture capital trust (VCT) and inheritance tax (IHT) products, advisers often ask what they should be looking at depending on the time of the year.

We have put together a tax-efficient investing ‘calendar’ as a guide to what advisers should look at and when.

This should help to avoid the inevitable rush of activity, which usually happens in the first few months of the calendar year as the end of the current tax-year approaches.

We’ve started our calendar from the third quarter, as that’s where we are in 2018.

Traditionally, the majority of tax-efficient business is written between September and April, hence the ‘tax season’ rush. However, while demand for tax-efficient products increases, as they start to plug the pensions-gap, the need to be able to offer advice on these products becomes an evergreen task for advisers.

In fact, we have seen a number of products across the EIS and VCT space offer a regular subscription option to mimic pension-like contributions.

With regard to the VCT market, the changes announced in the Autumn Statement have placed a strong focus on the swift deployment of assets (30 per cent of new money raised must be deployed within 12 months), which could put pressure on managers and their deal flow.

Given there were a number of very successful fundraises in the last tax year it will be interesting to see what offers are available this year and what size they are.

This will become more apparent during the third and fourth quarters.

Q3: July to September

EIS: Historically this was always a good time to look at the structured EIS market as it was gearing up to the traditional fundraising season. However, given the rule changes last year this market has almost entirely disappeared from the EIS space, which really only leaves those growth capital options that are usually evergreen.

One of the key things to look at from a financial planning perspective is the deployment, deal-flow and pipeline of the investment manager that the client is considering.

People often make the mistake of thinking that tax relief is granted from when you send your application to the investment manager. It is not. It is taken from when the manager invests that capital into EIS qualifying investments.

Some managers can take up to 24 months to fully do this, so although tax year end is still six months away, people already need to be thinking about it.

VCT: Some managers will have already launched and many have announced their intention to do so. In recent years we have seen the VCT season starting earlier and earlier.

Advisers should have a sense of what will be open, when it will open and the size of the offer. Often there are also early-bird incentives to invest earlier; by doing so you can save on the initial fees charged by investment managers.

This is also the time to identify which managers are your preferred choice and start doing your due diligence. The demand and competition for VCTs continues to rise, driven by increasing awareness of their benefits and place in an investors’ portfolio, as well as people looking at them alongside their pension contributions.

As people use their remaining carry forward allowances, the supply and demand issue will increase – so do your due diligence as early as possible, as you need to be prepared and ready for when your preferred offers open. For the most in-demand managers, if their offers are already open, don’t delay, as the most popular ones can become fully subscribed within days or weeks.

IHT: Over the quieter summer months some managers might have promotional discounts on their fees – so keep an eye out for them.

Q4: October to December

EIS: For evergreen growth capital EIS managers there is probably a cut-off within the third quarter, after which they’ll be unable to guarantee to have clients invested before the end of the current tax year. This always provides impetus to help get clients over the line, so fundraising will be starting to increase in the build-up to the first quarter and the end of the tax year.

VCT: Fundraising will be well underway, so the majority of VCTs will be open. For top-ups into existing VCTs you may be able to invest prior to their ex-dividend date; this means clients can sometimes receive a dividend within five months or so of investing rather than wait for a year to receive one (depending on a VCT’s dividend policy).

IHT: For the majority of clients the festive period is one of the few moments that the entire family is together, providing the opportunity for discussion around succession planning.

We often find January is a surprisingly busy time for IHT business as a result.

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Source: FT Adviser, By Jack Rose.



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