The rise of schemes like EIS has meant that investing in tax efficient, high-growth and impact-driven investment opportunities has become increasingly accessible to investors who are keen to plan for later life and aim to have a positive impact along the way.
A variety of tools in the UK can help to minimise the amount of capital and assets that are taxed from someone’s inheritance, from the current Inheritance Tax of 40% in the UK, including the Enterprise Investment Scheme (EIS).
The inheritance tax relief provided by the scheme boosts venture capital investors’ control over their assets in the long term.
IHT is paid on an individual’s estate after they have passed. An estate comprises of an individual’s overall wealth and possessions and is inclusive of a person’s property, assets, vehicles, belongings and any other wealth which they have collected over the years.
In the UK the inheritance tax nil-rate band is £325,00. However, following the government’s announced introduction of an additional “main residence transferrable allowance” of £175,000 in 2021, the IHT-free threshold can reach up to £500,000, so long as at least £175,000 of that comes in the value of a first home.
Any inheritance over this value is taxed at 40%.
Growth Capital Venture states the following example: should a high-net-worth individual pass down an inheritance worth £750,000, £100,000 of this would be liable to be taxed in IHT (40% of the surplus £250,000).
The Enterprise Investment Scheme is a way for an individual to protect their estate from IT, so that family members and friends can pass on their belongings in a penalty-free way.
The Enterprise Investment Scheme was introduced in 1994 as a way to help provide innovative UK startups and scaleups with the funds they need in order to grow and scale by encouraging investors through a range of tax incentives, in particular, full inheritance tax relief.
Investing in high-growth startups and scaleups through EIS allows investors to take advantage of a range of tax reliefs while growing and refining their portfolio in order to achieve maximum positive impact.
EIS investing can be a perfect solution for investors with large estates planning for later life, who may need some IHT exemption, for the following key reasons.
- Individuals can invest up to £1 million a year in EIS
- Individual’s investments reach IHT exemption after a period of just two years
- Individual remains in total control of their investments throughout their life, rather than being required to place them under the immediate control of beneficiaries.
Several other tax advantages accompany these IHT tax reliefs, including:
- Income Tax Relief of up to 30%
- Loss of relief in the event that the investment is sold for less
- Capital Gains Tax reliefs, deferrals and exemptions
In order to minimise your IHT liability using EIS investments, you may need to bring in an element of managed risk to your portfolio through investing into companies which are EIS eligible, and therefore, are much more early-stage than comparable investment opportunities on the market.
The rise of schemes like EIS has meant that investing in tax efficient, high-growth and impact-driven investment opportunities has become increasingly accessible to investors keen plan for later life and have a positive impact along the way.