This article is taken from FT Adviser, where Intelligent Partnership’s research was highlighted. Click here to see the original article
A full ban on the inclusion on all types of renewable energy in venture capital trusts and enterprise investment schemes does not close all of the options for tax-incentivised renewable investment, experts have said.
Specifically, investors can still invest in renewable assets which qualify for business relief, sheltering funds from inheritance tax, according to Intelligent Partnership and Time Investments, a provider of tax advantageous investments.
Business relief, which was recently rebranded from business property relief, was introduced in 1976 to mitigate the inheritance tax bill faced by business owners by excluding their business assets when passed on to family members.
The rule has evolved over the years and now covers any unlisted asset held for two of the previous five tax years and still owned on death.
A study conducted by Intelligent Partnership, an alternative investments education and research firm, found that renewables have been the most popular EIS investment over the last three years, with the majority (58 per cent) of advisers selecting this as their preferred investment sector.
It also found that since 1998 28 per cent of all EIS investment offers have been in energy, comprising 60 of all products. In its analysis of fundraising targets by sector, energy had the largest average across the market of £14.7m, £6m higher than the next sector average.
Henny Dovland, business development manager at Time Investments said: “Conservative investors have favoured these large-scale, asset-backed investments with well-developed technologies underpinned by government incentives because they are predictable and therefore low risk.
“They no longer qualify under EIS but the subsidies – both feed-in tariffs and renewable obligation certificates – haven’t disappeared. For BPR they continue to be great predictable long-term revenue producing assets.”
According to IP, many EIS investors will now have financial planning needs around mitigating the inheritance tax liability their estates will generate.
Daniel Kiernan, research director at the firm, flagged up that with rising asset prices and the nil rate band frozen, HMRC estimates that 5,000 additional estates will be pulled into the IHT net by 2018.
Plans announced in the Conservative Party manifesto would reduce the IHT burden on expensive property by introducing a new allowance of £175,000. A couple could add this to their existing £325,000 allowance to pass on a home worth £1m tax-free.
A tax expert speaking at an FTAdviser event earlier this year suggested business relief may not survive for long in its current form in the next parliament, suggesting that conversations within the Treasury could lead to a requirement for assets to be held for a number of years after death.
Mr Kiernan said: “Holding assets that qualify for business property relief is one way to reduce the IHT bill, and by virtue of their EIS investments, they will already have held BPR qualifying assets for the two year qualifying period required for IHT exemption. Advisers should bear this in mind.
“There is a three-year window to purchase replacement BPR assets, so as their clients exit renewable energy EIS investments, there is an opportunity to reinvest in the sector and still benefit from the incentives via a BPR product.
“For clients who are reaching the point where IHT is a consideration, it would be a shame to let the qualification lapse and have to restart the clock.”
Mr Kiernan added: “A major benefit is that, unlike other estate planning solutions, if the client requires access to the funds in the future the investment can be liquidated and the funds freed up for other purposes.”