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

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Slide 2 Tax efficient investing for high income earners Martin Churchill Editor, Tax Efficient Review Slide 3 Tax Efficient Review Subscription based 545+VAT per 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 Slide 4 Tax Efficient Review Briefing Notes on major corporate actions e.g. mergers, Enhanced BuyBack offers Slide 5 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 report not per VCT Slide 6 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 c70m 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 Slide 7 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) Slide 8 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 Slide 9 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 Slide 10 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 Slide 11 Restricting interest in EIS this year Compliance/PI cover issues What is a UCIS Tax break less clearcut that VCT Corporate governance Track record Slide 12 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 Slide 13 Seed EIS The investor tax reliefs: 50% tax relief against income tax 28% 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 levy 2.where is follow-on investment coming from Slide 14 Driving interest in BPR this year The 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 Slide 15


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