Tax Planning Product Changes – Act Now To Beat The Budget Deadline:
- RELIEF ON VCTs REDUCES ON 6TH APRIL SO ACT NOW FOR MAXIMUM BENEFIT
- READ MORE FOR OTHER BUDGET UPDATES ON VCTs, EIS & SEIS
A Happy New Year from all of us here at Best Advice Wealth Management. We trust you had a relaxing and enjoyable festive period.
As life slowly returns to normal at this time of year, many people resolve to attend to their financial affairs among other matters. With this in mind, we’d like to draw your attention to a topical subject which will be of particular interest to higher rate taxpayers.
The were several amendments included in the recent Autumn Budget to the rules applying to Tax Planning products. These were less headline-grabbing than some of the Chancellor’s other measures so may well have slipped under the radar for many, but nonetheless investors in these products need to be made aware of the forthcoming changes to avoid being caught out.
Venture Capital Trusts (VCTs)
Venture Capital Trusts (VCTs) are well-established, HMRC-endorsed tax planning investment products designed to reduce tax bills, whilst stimulating the economy by investing in early-stage, growth orientated UK companies. VCTs have a generous annual investment allowance of £200,000. VCT providers facilitate investment through a listed holding that takes minority stakes in many early-stage companies and there is a minimum 5-year qualifying period to receive tax benefits.
From 6 April 2026 the VCT income tax relief will decrease to 20%, down from 30% currently. This reduction in tax relief is seen by some commentators as disappointing for UK venture investing, so users of such products will need to act promptly to benefit from the 30% relief before the reduction in the next tax year.
However, to help the early-stage companies which benefit from these investments, the Chancellor has made several other changes to VCTs, mostly focused on expanding the size of eligible companies and the investment they can receive.
The popularity of VCTs has grown as the number of higher rate taxpayers has grown and will continue to grow due to the continuing freeze on the higher rate income tax threshold. In relation to VCTs, the tax freedom of dividends against a background of higher taxes on other investments and, soon to be even higher taxes on dividends, VCT fundraising in 2024/25 was the third highest on record at nearly £900m. This figure could be exceeded in the current tax year, considering the impending reduction of the rate of income tax relief and the increase in the rate of dividend taxation for basic and higher rate taxpayers on other investments. Most of the long-established VCTs started their 2025/26 capital raising well ahead of the Autumn Budget.
Investors should note that the most attractive VCT offers often sell out quickly – well before you read about them in the financial press. With many offers already open, some with limited remaining capacity, and the final opportunity to obtain 30% income tax relief before the 5th of April, please get in touch with us as soon as possible if you want to discuss making a VCT investment in the tax year.
Read more about VCTs and their benefits here: Venture Capital Trusts (VCTs)
Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) is another well-established, HMRC-endorsed tax planning investment product scheme designed to reduce tax bills and stimulate the economy by investing in early-stage, growth orientated UK companies.
Unlike VCTs, EIS providers facilitate investments through direct ownership of shares in one or more individual early-stage companies. There EIS scheme has very generous annual investment limit of £1M (or £2 million if investing in knowledge-intensive companies) and a minimum 3-year qualifying period to receive tax benefits.
Read more about EIS and its benefits here: Enterprise Investment Scheme (EIS)
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (EIS) is run along very similar lines to the EIS scheme and to complement it following its success since introduction. However, its aim is to support the growth of smaller and typically younger businesses and consequently, with the potential for investors to benefit from enhanced tax benefits, e.g. up to 50% income tax relief compared to 30% for EIS. The annual SEIS investment limit is £200k.
Read more about SEIS and its benefits here: Seed Enterprise Investment Scheme (SEIS)
The main tax benefits for the both the EIS & SEIS Schemes were unchanged at the recent budget, but in line with VCTs, the size of eligible companies and amount of the investment they can receive has been expanded.
Understanding the risks
VCTs, EISs & SEISs are high risk investments which invest in small, unlisted, or AIM-listed companies. There may be no market for the shares should you wish to dispose of them, and you may lose your capital. SEISs are very high-risk investments which are usually concentrated in a small number of unquoted trading companies or a single unquoted company and there is a possibility one or more of these companies failing.
Consequently, VCT, EIS & SEIS providers encourage investors to take advice from a regulated professional adviser to ensure suitability of their investment. At Best Advice Wealth Management, we offer VCT, EIS & SEIS investments only on an advised basis, so this is where we can help.
Within our assessment, we will look at your personal tax circumstances, previous investment experience, attitude to risk and capacity for loss to ensure that the product is suitable for your needs. We are fully regulated and authorised by the FCA to provide advice on tax planning products, which means that in the event that the product was not suitable to meet an individual’s needs, the investor has recourse to the Financial Ombudsman Service (FOS) to independently assess the merits of the advice provided. We are required to seek to deliver the best outcomes for our clients and are obliged to carry professional indemnity insurance in this regard. If you were to purchase a VCT from a regulated distributor on a non-advised basis, you would not receive the same level of service or the reassurance of FOS protection.
We deal with all of the major tax planning product providers and further information on these products is available on here: Tax planning – Best Advice Wealth Management
Get In Touch Today
If you would like to learn more and benefit from expert advice and guidance in this complex and dynamic area of tax planning, please get in touch.