Advisers often ask what they should be thinking about at different times of the year when it comes to investing in tax-efficient vehicles such as VCT, EIS or IHT products, writes Jack Rose, head of sales at Triple Point.
Although timings will always be driven by the client’s needs, there is a certain ebb and flow to each year that has allowed us to create a calendar as a guide for advisers.
This article outlines what and when advisers could look at certain things to steer clear of the inevitable rush of activity that usually comes as the end of the tax year approaches.
The calendar has started from Q4 due to where we are in the year.
Q4 (October – December)
During Q4, fundraising for VCTs will be in full swing with the majority of offers either open or with launch dates finalised.
Indeed, the start of the VCT ‘season’ has been getting earlier and earlier for the past few years with at least 14 offers open before the end of September.
These offers provide over £570m of capacity for investors, with at least another five VCTs still to open. Some VCTs may have announced dividends, allowing you to invest before their ex-dividend date. This option means clients might receive a dividend within five months of investing, a shorter wait compared to the typical year or more (depending on a VCT’s dividend policy).
From a fee perspective, it is also often the best time to invest. Many VCTs offer early bird and existing shareholder discounts at the start of their offers, helping to reduce any initial fees.
Although inheritance tax (IHT) planning is something that happens consistently throughout the year, for many people the festive period is one of the few moments the entire family is together, providing opportunity for discussion about succession planning. As a result, we often find January is a surprisingly busy time for IHT business.
For those considering EIS, given the typical timeframes to deploy capital into underlying investee companies (which can typically be anywhere from 8-24 months) it is unlikely managers will be able to invest much of the capital prior to 5 April .
Although you can utilise ‘carryback’, it is important to consider the tax planning implications of the deployment timings.
Q1 (January – March)
As we progress through Q1, is it likely that the fund raises for some of the better known more mature VCTs within the VCT market will be closed or closing, depending on the size of their offers and time of opening. The rush to tax year end really kicks off in earnest from mid-February, after the self-assessment deadline at the end of January.
The period leading up to 5 April can be an ideal time to review ISA portfolios and ensure clients have maximised their allowances. Consequently, it is also a good time to consider AIM IHT ISAs for clients that are looking at IHT planning. This could mean transferring an existing ISA portfolio into an AIM IHT service or using the current tax-year allowance within an AIM IHT portfolio service or both.
Q2 (April-June)
The majority of VCTs will be closed by 5 April, but not all. It is increasingly common to see VCT offers and planning stretching into June.
For those that have made their investments, the main thing to remember is to collect or keep a record of client’s shares and tax certificates, which can often be sent directly to the client. These are either used to adjust an investor’s tax code or submitted with their self-assessment.
If you haven’t purchased the VCT via a platform such as Transact, it could be worth considering transferring any VCT shares into a ‘nominee’ – to house all your client’s investments under one roof.
This will make it easier to keep track of everything, review performance, exit and recycle into new VCTs (should you want to) as well as facilitate advisory fees via the platform for your advice.
It is also always a good time to look for educational seminars run by managers and industry bodies following the end of the previous tax year.
These will provide a refresher on product benefits and specific legislation, highlight rule changes, and provide planning opportunities to engage and support clients with.
Q3 (Jul – Sep)
Although summer is the quietest time of the year with many people on holiday, it can also be a great time to get ahead on your research on upcoming VCTs for the next year.
Many VCTs will have already started the process to prepare their next prospectus and announced their intentions to launch. This period gives you the opportunity to get a head start before things get busy later in the year.
As mentioned at the start, clearly investments into these types of products are driven by the client’s needs and timings.
However, anticipating seasonal trends can help advisers to be proactive in their client support, maximising opportunities while trying to avoid some pitfalls. Each quarter brings its own nuances.
With ongoing education and prompt action, advisers can best guide their clients on VCT, IHT and EIS, especially as the appetite for these products continues to grow.
This article was written for International Adviser by Jack Rose, head of sales at Triple Point.
