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Unlocking the tax planning opportunity with business owners
“The most common problem faced by clients who are business owners is taxation,” explains Martin Cliffe, Financial Adviser at The Martin Cliffe Practice.
It’s become more challenging for advisers to add tangible value. With rates on cash savings climbing and volatile markets, it’s harder for clients to appreciate the value of advice.
However, tax planning and tax-efficient investments are a clear way to add significant value for suitable clients. For this reason, business owners should excite advisers and paraplanners.
Tax-efficient investments can be key
“It’s been a challenging last three or four years for obvious reasons,” explains Martin. “But tax-efficient products stand out as very beneficial. I have lots of happy clients as a result.”
Martin has been able to use tax-efficient investments – Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS) and Business Relief (BR)-qualifying investments – to support business owners with their tax planning. Whether that’s using investments to help clients extract profit tax-efficiently, or helping clients plan for the inheritance tax and capital gains tax implications when selling a business.
“We recently helped a lady that sold her share in a business and wanted to plan for inheritance tax.”
“We explained that she didn’t have to give away her assets to manage inheritance tax. She could make a BR-qualifying investment. Because the money’s coming from a qualifying asset, she didn’t even have to wait two years for relief. So it can be a great product for business owners.”
Ordinarily, a BR-qualifying investment would have a two year holding period to become free from inheritance tax. But due to replacement relief, a client’s investment should qualify for relief immediately, provided their funds are invested within three years of the sale of their business.
“I really look forward to meeting business owning clients because the products we have are so valuable. And because we do specialise in tax-efficient investments, we receive more referrals and recommendations on tax efficient products than any other product by quite some margin.”
Understanding the key risks
Tax-efficient investments are high risk. The value of an investment, and any income from it, can fall as well as rise, and investors may not get back the full amount they invest. The shares of unquoted companies and VCTs could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
Tax treatment depends on individual circumstances and tax rules could change in the future. Tax relief depends on portfolio companies or the VCT maintaining their qualifying status.
See how tax planning can help your clients
To help you deliver good outcomes with tax-efficient investments, you can use our client planning scenarios. They’ll help you see how tax planning can support clients – not just business owners – across the entire client bank.
Explore planning scenarios >> https://octopusinvestments.com/client-planning/
Tax-efficient investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. This communication does not constitute advice on investments, legal matters, taxation, or any other matters. Personal opinions may change and should not be seen as advice or recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No.03942880. CAM013342
