tax efficient investing for high income earners martin churchill editor, tax efficient review

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Page 1: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review
Page 2: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Tax efficient investing for high income earnersMartin ChurchillEditor, Tax Efficient Review

Page 3: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Tax Efficient Review

• Subscription based £545+VATper annum

• Covers Venture Capital Trusts, Enterprise Investment Schemes, Inheritance Tax offerings and Business Premises Renovation Allowance products

• Completely independent – providers do not pay for inclusion

Page 4: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Tax Efficient Review

• Briefing Notes on major corporate actions e.g. mergers, Enhanced BuyBack offers

Page 5: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

VCT Valuation Service

• The VCT Valuation Service will help IFAs support VCT clients on an on-going basis and meet the proposed Retail Distribution Review requirement that on-going charges should only be levied where a consumer is paying for on-going service, such as a performance review of their investments, or where

• £50+VAT per portfolio reportnot per VCT

Page 6: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

How did VCTs do in tax year 2011/12 (1)Hectic year:

• Solar offers and December 12 ruling

• Consultation

• 6 December proposals

• Finance Bill “investment limits condition” restriction on any portfolio company receiving more than £5 million from any state aided, risk-capital investment source in any 12 month period

•Split between prospectus and non prospectus offers

•Overall there was c £400m on offer and around £240m was raised in new money in period October 201-April 2012 net of c£70m of Enhanced Buyback offers and £45m from previous year

•Not a bad outcome but lower than the £350m (net of £10m Enhanced Buyback) in tax year 2010/11

Page 7: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

How did VCTs do in tax year 2011/12 (2)• Still in my view roughly 50:50 split between Generalist and

Planned Exit offers although some solar offers this year were hybrids

• EIS had a strong showing and undoubtedly took market share from VCTs

• No new entrants into VCT market

• Low amounts raised by • Iona Environmental VCT B shares (£800k out of £10m)• Ingenious (£4.1m out of £15m)• Triple Point (£3.6m out of £16m)• Edge Performance VCT H share (£2m)

Page 8: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Outlook for current tax year• More uncertainty

• Effect of Retail Distribution Review on VCT launches• Effect on Planned Exit VCTs of Disqualifying Purpose Test

The test will disqualify shares which are issued subject to arrangements whose main purpose is to generate access to the reliefs in circumstances where either the benefit of the investment is passed to another party to the arrangements (i.e. the investor), or the business activities would otherwise be carried on by another party.

• Consultation Paper 12-19 (Restrictions on the retail distribution of unregulated collective investment schemes and close substitutes)

• EIS offers are coming through in large numbers (and first Seed EIS retail offers are in the market)

• Generalist could benefit from potential reduced attractiveness of Planned Exit coupled with actual five year results

• Will RDR mean most fund raising moves to 2012?• Effect of Consultation Paper 12-19

Page 9: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Structure issues• More mergers/acquisitions (Octopus Apollo, Octopus

Eclipse)

• More Enhanced Buyback offers

• More emphasis on Investor relations

• When is a dividend a real dividend and should distributions be lumpy or smoothed

• Well implemented buyback must be in place to raise more funds

Page 10: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Driving interest in EIS this year

• Raised £500m through retail channel in 2011/12 tax year (TER Estimate)

• Few government-supported tax-efficient investment schemes remain

• Few ways to mitigate the new 50% top rate of Income Tax

Page 11: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Restricting interest in EIS this year

• Compliance/PI cover issues

• What is a UCIS

• Tax break less clearcut that VCT

• Corporate governance

• Track record

Page 12: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

EIS hurdles in 2012

• IFAs understanding of offering

• FSA approach to EIS/UCIS

• IFA scepticism about performance

• Evidence of track record

• Distribution is biggest hurdle to new entrant

Page 13: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Seed EISThe investor tax reliefs: 50% tax relief against income tax28% relief against capital gains tax (tax cancelled, not merely deferred)ability to write off 50% of investment (net of income tax relief already received) in failures against income tax (even where the Company had not yet commenced trading provided its intention to trade was clear)

Seed EIS investors need to ask themselves two basic questions:

1. on an investment of just £150,000 maximum, how can the investee companies support the level of charges and fees that the fund manager will seek to levy2. where is follow-on investment coming from

Page 14: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review

Driving interest in BPR this yearThe definition of a "business" is wide and is not as restrictive as the accepted definition of

a "trade" (ICTA 1988 section 832) and as a result there are IHT offerings based upon

financing opportunities which would not qualify as a "trade" in an EIS or VCT.

The aim of a provider is to find a BPR business opportunity that meets all the investor

requirements listed below and is also scalable.

1. Minimises tax risk

2. Protects the downside risk

3. Allows a modicum of upside to cover running costs and possibly pay a small

annual return

4. Allows liquidity for early exit or partial return of capital

5. Has low provider costs

Page 15: Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review