In a recent survey of high net worth investors conducted by Wealth Club, 70% of respondents said they plan to invest in Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) or Seed Enterprise Investment Schemes (SEIS) this year.
This is in direct response to their curtailed pension contribution limits whereby those earning over £150,000 will see pensions contribution limits reduced to as little as £10,000 per tax year.
Ben Yearsley, investment director at Wealth Club, said: “With the introduction of the new restrictive pension rules on 6 April, investors are looking for alternative ways to invest tax efficiently for their future.
“VCTs and EIS could be the major beneficiaries as 70% of respondents to Wealth Club’s recent survey said they would look to invest.”
The survey found that:
- 70% of respondents will look to invest in VCTs, EIS, or SEIS
- 38% haven’t invested before in VCTs, EIS or SEIS
- 49% of high earners won’t make further pension contributions
- 63% of those not making further pension contributions will make VCT, EIS or SEIS investments instead.
The third bullet point is interesting in that nearly half of high earners who invested in pensions in the past will not make any pension contributions in future.
Two recent rule changes affect many high earners in respect of pension savings. Firstly the tapered annual contribution allowance limiting high earners to as little as £10,000 per annum and secondly the reduction in the annual lifetime allowance to £1 million. VCTs and other tax advantageous schemes investing in small, unquoted companies are the alternative of choice.
Yearsley said: “A high earner could invest £1.3m this tax year in VCTs, EIS and SEIS and receive an income tax rebate of £410,000. No wonder many high earners are considering these options when the annual pension contribution allowance could be as low as £10,000.”