This article is taken from Professional Adviser, where Intelligent Partnership’s research report was mentioned. Go to the original link here 

The reduction in the life-time allowance and changes to the inheritance (IHT) regime are most often cited as reasons for increased investment into Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCTs).

The lifetime allowance will reduce from £1.25m to £1m this April while the pensions freedoms introduced in April 2015 changed IHT rules so that savers could pass on more of their pension to children without incurring a tax charge of 40%.

A recent report from Intelligent Partnership suggested these changes have meant advisers are turning to alternative investments while Dobson & Hodge financial services director Paul Stocks predicted something similar a year ago.

Total funds invested into EIS schemes are not available for 2014/15 but VCT investments for the same period edged downto £435m, compared with £440m in 2013/14.

Schemes such as these are regarded as “the few games left in town” for tax planners according to Oxford Capital head of business development Simon Ruthers. Oxford Capital is an EIS specialist.

Other advisers say, however, they are no more inclined to recommend either of these schemes than they were before the changes to the rules around IHT or the lifetime allowance. SRC Financial Wealth Management adviser Simon Torry said: “I’ve never recommended an EIS scheme. It’s main use is in IHT planning but, in my view, it is too blunt an instrument.

“The schemes offer good tax relief rates for IHT tax planning – a 30% tax relief on investment and exemption from IHT if held for two years or longer. But most of my clients are approaching retirement. They want to preserve their capital not take on more risk.”

AW Financial Mangement adviser Jon French said: “It is a really niche area suitable for only a small number of high net worth individuals. I think a lot of investment in these schemes is done by the clients themselves when they have spare money to play with. It isn’t something I deal with. Many of my clients are close to retirement and don’t want to take the risk.”

Hargreaves Lansdown head of communications and chartered financial planner Danny Cox said: “VCT schemes are more likely to be used in pension tax planning than EIS schemes. They offer 30% income tax relief although they are high-risk and illiquid.

“EIS schemes are more suited to inheritance tax planning as, after a minimum of three years investment, they offer this relief. But the down side is they have to be realised at some point.”

Cox added: “Advisers are far more likely to opt out of offshore investment bonds or make use of the capital gains tax regime with shares and funds. The tax is lower than the income tax regime. EIS and VCTs remain specialist options.”