Five considerations for tax-efficient investors this summer

Tax-efficient investors and their advisers have much to think about – and this summer like no other is a good opportunity to do exactly that


Three or four months of lockdown presents an opportunity for contemplation. Many people have taken the time to reflect on life, their future plans and, not least, their financial situation. This re-calibration is in part a response to massively impacted world economics and certainly a cautious, if not fearful, approach to what lies ahead.

June, July and August are typically quieter months in the tax-advantaged sector before activity starts to pick up again in September, but the savvier investors will plan ahead this year. With that in mind it is worth highlighting a few useful action points for the preparation checklist:

Do your due diligence early

There are good growth opportunities out there and, as a result, the best venture capital trust (VCT) and Enterprise Investment Scheme (EIS) managers will already have well developed investment pipelines through to April 2021.

Due diligence can take as long as six months before investing. So those planning ahead and moving early are likely to be rewarded with the best-value investment deals. Remember – it is well worth considering managers who have a regional focus, and therefore will see different investment opportunities, where better value can exist.

Expertise is key

As always, there will be no substitute for selecting managers with the capability and expertise to unlock the best value deals and who also maintain the strength of resources to support and guide their portfolio companies post-investment – both financially and managerially.

Government financial support measures themselves have been a lifeline for a wide range of sectors but, depending on how the investee companies have used them, they will come with conditions attaching – not least around an ability to pay dividends while government support is still extant.

This added complexity and the extra debt-servicing burden will be a key consideration for product providers and those with debt as well as equity investment expertise will be the ones who can best cut through with a clear understanding. Looking beyond product headlines and deeper into the credentials of the managers is of paramount importance.

Income or growth?

The older and longer-standing VCTs have been obvious ‘go to’ products for dependable dividends. Some of these very substantial portfolios, however, contain longer standing-businesses with significant debt positions. While government support may well be of short-term help to them, there is a potential ‘cliff edge’ when this support comes to an end, which might well disrupt dividend distributions.

Diversifying between income and growth across a number of VCTs is a sensible strategy, and there are some newer VCTs that may offer better prospects for growth, unfettered by legacy investments and a position in which to maximise the value opportunities that economic downturns often provide.


VCT and EIS investments possess similar DNA. Far from propping up historic investments or debt positions through the pandemic, it is likely growth in both will best come from companies that look set to thrive from the outcomes.

Backing those managers who are investing funds into the post-pandemic world with increased knowledge and visibility of the ‘new normal’ may well be a significant driver for investors this year. This should be contrasted with funds going into existing portfolios to support existing companies that may have suffered badly in recent months.

IHT considerations

IHT planning tends to be evergreen, so investors who are uncomfortable with market volatility and potential erosion of capital ought to seek out alternatives that are inherently backed by physical assets and can provide tangible security for their capital.

It is also possible to make these capital sums work far harder. There are a number of proven, asset-backed IHT business relief products in the market – some of which also produce natural income distributions on a quarterly or half-yearly basis to supplement other income. That should add up to clients protecting capital, mitigating IHT and enjoying the income benefits with their family during their lifetime.

Tax-efficient investors and their advisers have much to think about – and summer is a good opportunity to do exactly that.

Chris Hood is sales director at Seneca Partners, manager of the Seneca IHT Service, Seneca Growth Capital VCT and Seneca EIS Portfolio Service


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