Are you an UHNWI?

Posted on: 07 February 2014 by Olderiswiser Editorial

You may not be an Ultra High Net Worth Individual, but there is no reason why you can't make your money work one.

Very wealthy manThere are 190,000 people around the globe with more than $30million in the bank and, according to the recent Candy Global Prime Sector report, they are changing the concept of the holiday home.

They no longer shop close to home, as has been traditional. Now they search the globe for the very best in location, sea, sand and facilities – and make them even more luxurious and exclusive. They want seclusion and all that the modern high-tech world can provide – with money being no object!

There is no harm with dreaming. There are financial opportunities and investment schemes in the UK that do reward risk and courage. As a time when traditional saving and investment are only slightly more rewarding than the space under the mattress, such schemes have a real attraction.

This week it was revealed that banks and building societies hold £1.1 trillion of our savings – and around £130 billion of that (an increase of 20% in the past year) inhabits accounts that pay no interest at all! Small wonder we want our money to work a little harder for us.

To clarify these mind-boggling figures - in English speaking-countries, a trillion is a million million – and a billion a thousand million.

Venture Capital Trusts and the Enterprise Investment Scheme – herein known as VCTs and EIS – have long been popular with the sophisticated investor. Despite their obvious tax advantages, these investments schemes are not for those simply rolling the dice or chasing the tax relief.

Importantly, for those who choose an investment scheme that excites and provides a real possibility of success the rewards can be substantial - before, during and after the event.

With a VCT, income tax relief on new shares is available at 30% on the amount subscribed, currently up to £200,000 in a tax year, provided the shares are held for five years. There is also exemption from Capital Gains tax on disposal of the shares and exemption from income tax on dividends on ordinary shares in VCTs.

With the EIS, an individual can claim the same 30% income tax relief, this time up to £1million per annum, provided they hold no more than a 30% interest in the company. There is the same exemption from CGT (this three years) – as well as being able to defer CGT on other assets (12-months before the EIS investment or less than 36 months after it).

If EIS shares are disposed at any time at a loss, that loss can be set against the investor’s capital gains or income in the year of disposal. EIS investments are exempt from inheritance tax after two years of holding. VCTs are not, but claiming the tax relief on VCT is much easier and certainly quicker than EIS as there can be delays in the EIS certificates being issued.

Such rare and bountiful generosity from Her Majesty’s Revenue & Customs is clearly not without risks and comes at a price. So take care – and take advice.

VCTs were introduced in 1995 by John Major’s conservative government to encourage investment into businesses. The EIS appeared a year earlier in succession to the Business Expansion Scheme.

Both have proved popular and successful, not least because with specialist advice and careful planning and preparation, you can eliminate some (though not all) of the risk.

The EIS is the more popular investment vehicle, with its IHT element giving the scheme a long-term advantage. VCTs tend to attract the more sophisticated investor, whose main aim is to reduce his current tax bill – and the VCT can be extremely effective in this area.

The rush towards a greener environment has seen the introduction of several solar energy VCTs with even less risk as they are underpinned by government-backed ROCS.

More initials, but it’s worth the wait. ROCs are Renewable Obligation Certificates. The Renewable Obligation requires energy suppliers to source a specified proportion of the energy they supply from renewable sources and is the main financial mechanism supporting this task.

There are three UK Renewable Obligations – England & Wales, Scotland and Northern Ireland, so specialist advice is essential. These ROs set the proportion (known as the obligation) of electricity that must come from eligible renewable sources annually. So far, this proportion has continued to increase.

There’s another risk to consider. It is the familiar one of politicians changing their minds or chasing votes. Those with pension pots are only too familiar with goalposts regularly moving or even disappearing, as if on wheels.

The Renewables Obligation is underpinned by Government and European policy, so it is set in stone until the policy changes!

There is little doubt that VCTs and the EIS could become increasingly attractive as the UK emerges from the recession and austerity, especially as the tax advantages of pensions are being reduced.

The financial adviser will make the investor aware of all of the small print, which is considerable. Even HMRC’s page on VCTs advises the visitor to the website to get more detailed information from the Venture Capital Schemes Manual.

Doing your homework costs nothing, except a little time and effort.

A brief examination of the VCT and EIS rulebook might lead some to think it’s simpler, quicker and less hassle to put some money on the favourite in the second race at Newton Abbott. That’s their choice. Others have found the VCT and EIS investment route much less of a gamble!

For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail or take a look at our website

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