financial planning – are you utilising eis/seis ... · previously a partner in a leading city law...

FINANCIAL PLANNING – ARE YOU UTILISING

EIS/SEIS INVESTMENTS TO THEIR FULL POTENTIAL?

PIERS DENNE KUBER VENTURES

Agenda09.15 - 09.20 Introduction, Piers Denne, Kuber Ventures

• Welcome• Objectives of the day

09.20 - 09.50 EIS/SEIS the opportunity, Piers Denne, Kuber Ventures• Market overview• Forthcoming exits• Absence of Renewables• Importance of due diligence• EIS/SEIS Financial Planning suitability

09.50 – 10.30 David Kilshaw, Private Clients Services Partner at EY • EIS/SEIS tax breaks• Current EIS/SEIS applications

10.30 – 10.45 Coffee

Agenda10.45 - 11.30 EIS/SEIS case studies

Dermot Campbell, Kuber Ventures

• Cases studies• CGT• Diversification• Client above the lifetime allowance• Client of an Interest in possession trust• Client surrendering a Bond/Offshore bond

• Platform Benefits

11.30 - 12.00 Closing Remarks/open discussion

Market Overview

• Finance (No 2) Act 2015• All energy generation activities are excluded activities for the

purpose of all tax-advantaged venture capital schemes: EIS, VCT, SEIS and SITR.

• Loss of major EIS provider in market (Octopus)

Change in legislation, leading to change in asset classes

Change in emphasis for HMRC and Treasury in asset classesthat qualify

Impact of Charges

Multiple new ‘smaller’ capacity EIS/SEIS investment opportunities

Less ‘reliable’ (FITS etc.) returns

Limited Life EIS removed

EIS investing becoming more VC orientated

Added to this

Reduction in capacity for 2016 (Renewables £500 million)

Start of maturities of existing EIS (£200 million)

The Importance of Due Diligence

• Driven by new Venture Capital Houses moving in to the EIS market, but not covered by them

More to the market than covered by Allenbridge and Martin Churchill

MIFID 2 – January 2018

Making sure your DD, or that of your chosen platform is fit for purpose

Due Diligence

• Fair, clear and transparent charging

• Track record of VC investing (without an EIS wrapper)

• Strong management and team

• Independent analysis

Things to look for

Overlaying a portfolio approach on Existing clients

Renewables EIS 1 Renewables EIS 3Renewables EIS 2

Kuber Ventures

EISMedia

EISStorage

EISTechnology

SEISLife

Sciences

SEISMusic

BPRRenewable

Introducing David Kilshaw

• David is a partner in EY’s private client team in London. Prior to joining EY in 2014, David was the head of another top four private client practice. David is also a qualified solicitor and was previously a partner in a leading City Law firm. David is listed in Spears Top Ten Private Client Accountants.

• In 2014 Citi Wealth listed David as one of their “top 20 men in Private Wealth Management”.

• David has over 30 years of experience of working with private clients, their investments and related structures. He works closely with colleagues in corporate finance, real estate and private equity on the personal tax aspects of major transactions.

• David is an experienced expert witness, most recently in the Mehjoo case in which non-dom issues were a major component

Private Clients Services Partner at Ernst & Young LLP

DAVID KILSHAW EY

The Tax Landscape29 November 2016

David Kilshaw

Agenda

► The fiscal climate► EIS/SEIS► BIR► Combination planning► BPR► Non doms and bonds► The future

29 November 2016 The Tax Landscape


“For this relief much thanks; tis bitter cold and I am sick at heart”

- Hamlet- Francisco to Barnardo

The Fiscal Climate

► Evasion► Avoidance► Mitigation► Perception


Perception I

“Tax reliefs are a substantial, complex and poorly managed element of the tax system. Each new tax relief has made the tax system more complex, and provided an opportunity for avoidance and abuse”

- The Commons Public Accounts Committee


The Perception II

► EIS► designed to help smaller higher non trading companies to raise

finance► since launch in 1993/94 over 20,000 companies have benefited

and over £9.7bn of funds raised► SEIS

► “stimulate entrepreneurship and kick start the economy”► The UK is open for business….. transparency and

fairness


Overview

► Provides Income Tax and CGT incentives to invest in unquoted trading companies

► Detailed qualification criteria


The Income Tax Relief I

► Takes the form of a reduction in Income Tax at the flat rate of the cost of new shares

► Tax relief increased from 20% to 30% on 6 April 2011


The Income Tax Relief II

► Individuals who subscribe for shares receive tax relief at 30% on the cost of the shares which is set against the individual’s Income Tax liability for the year in which the investment was made

► Can carry back all or part of the investment to the preceding tax year so long as the limit for relief is not exceeded in that year


Amount

► Maximum investment up to £1 million► The maximum amount of investment that a qualifying

company can receive is £5 million


The Small print

► Individual cannot be connected► Hold shares for 3 years► Qualifying trades► Company size► Company unquoted


CGT

► No CGT on sale after 3 years► CGT deferral relief possible on subscription


The news gets better:- Loss Relief

► If realise loss, that loss can be offset against income for that year and the prior year instead of capital gains

29 November 2016 The Tax LandscapePage

26

And better:- Inheritance Tax

► After two years shares may qualify for business property relief


An Example


► Guided by Kuber Ventures you invest £10,000► You receive £3,000 Income Tax relief


► All is going well with all your portfolio (this is Kuber Ventures!), so you hold the EIS shares for 3 years and they rise to £20,000

P.S. The value of your investments can go up as well as down


► Your total return is £13,000► The gain is tax free


► Your best mate has another investment adviser ……….


► His EIS company goes bust and his shares return zero ………


► He keeps his £3,000 Income Tax relief► He gets loss relief on his risk capital (£7,000) multiplied

by his tax bracket (say 45%) i.e. £3,150 of loss relief► So real loss is £10,000 – (£3,000) – (£3,150) = £3,850

SEIS(or the little sister)

► Designed for early stage companies► Offers tax relief at a higher rate► Applies for shares issued on or after 6 April 2012► Rules mirror EIS as “it is anticipated that companies will

go on to use EIS after an initial investment under SEIS”


SEIS: Tax Reliefs

► Income Tax Relief► Available to individuals who subscribe for qualifying shares in a

company which meets the SEIS requirements and who have a UK tax liability against which to set the relief

► Shares must be held for 3 years for relief to be retained► Relief is available at 50% of the cost of the shares on a maximum

annual investment of £100,000► Relief is given by way of a reduction of tax liability► There is a carry back facility which allows all or part of the cost of

shares acquired in one tax year to be treated as though the shares had been acquired in the preceding tax year

► Claim can be made up to 5 years after the 31 January following the tax year in which the investment was made


Example


Jenny invests £20,000 in SEIS shares in the 2012 and 2013 tax year in SEIS. The relief available is £10,000 (£20,000 at 50%). The amount owed for the year (before relief) is £15,000 which she can reduce to £5,000 as a result of her investment

Capital Gains Tax

► If you have received Income Tax relief on the cost of the shares and the shares are sold after they have been held for at least 3 years, any profit is CGT free.


Business Investment Relief

A non-dom relief

► The remittance problem


The effect

► Non-doms taxed on the remittance basis can bring untaxed overseas funds to UK and invest in a qualifying business with no tax charge


Key conditions

► Monies used to make loans to or subscribe for shares in company

► Must invest within 45 days of money coming to UK► Claim made on the tax return for which the investment is

made► No limits


The Small Print

► No benefit received by a relevant person► On disposal the proceeds up to the amount of the

investment must be taken offshore or reinvested


The Company

► Must be ► Trading company,► Holding company of trading group, or► Eligible stakeholder company

► Wide definition► Advance assurance procedure


“Doubling” on Reliefs


Income Tax Relief at 30%

CGT deferral at 28%

Inheritance Tax Relief at 40%

RND Relief at up to 45%

BPR

► Business profit relief for inheritance tax purposes► 2 years ownership conditions► Unquoted trading company


Non-Doms, Bonds et al

► Changes to remittance basis► Use of bonds as “wrappers”



Once you have a flavor for reliefs ……► VCT► CGT Entrepreneurs’ relief► Social Investment Tax Relief

Conclusion

► Reliefs are the “new” tax planning ► Combination planning is key► Need proper investment advice …..



……..combined with good tax advice!

Thank you


Speaker Details

David KilshawPartner– Private Client TaxTel: 0207 783 0763Email: [email protected]


DERMOT CAMPBELL KUBER VENTURES

Power of Loss Relief Portfolio example

10 investments - £100 each Total investment £1,000

Initial investment

Net profit (loss)

Total return post tax

1 investment fails £100 (38.5) £61.50

2 lose 30% of initial investment £200 0 £200

4 break even £400 £120 £520

2 return 1.3 x investment £200 £120 £320

1 returns 5 x money £100 £430 £530

Total return £1000 £631.50 £1,631.50

Assumptions: 45% income tax rate30% income tax relief

Loss Relief: If shares are disposed at a loss, the amount of the loss, less any income tax relief given can be set against income of the year in which they where disposed of, or any income of the previous year, instead of being set off against any capital gain.

MULTI-MANAGER EIS PLATFORM PORTFOLIO CONSTRUCTIONS

Investment £100.00Tax relief (£30.00)Loss amount £70.00Tax relief (@45%) (£31.50)Net loss (£38.5)

Diversifying a portfolio reduces the standard deviation

Asset allocation - EIS

• Earlier exits likely• Asset underpin results in lower risks

Media

• Downside risks contained by asset underpin• Limited upside• Exit predictable

Asset focused

• Return potential greater• Term longer• Interesting underlying investments (e.g. life sciences, technology

etc)

Venture style

Case study 1: Capital Gains Tax

CGT position• 2015/6 Capital gain of £250,000• Tax rate 28%

Income tax position• Taxable income £100,000 per annum• 2015/6 income tax liability £25,000• 2016/7 income tax liability £30,000 (estimate)

Objectives• Optimize tax situation• Minimis IHT risk

CGT case study

• £100,000 investment in current tax year

• Further investment of £100,000 in next tax year

EIS portfolio

• £50,000 investment immediatelySEIS portfolio

• £100,000 parked in BPR portfolio until 2nd EIS roundBPR

portfolio

Case study 1 results

£50k SEIS portfolio

£7,000 CGT (absolute)

saving

£25,000 income tax

£100k EIS portfolio

£30,000 income tax

saving,

£8,000 CGT saving

£20,000 CGT

deferral

£100k BPR portfolio

Starts 2 year IHT

clock

In 2017/8 or beyond

Future years

Move BPR holdings to

EIS

2015/6

Capital Gain £250,000after annual exemption

2018/9

Capital Gains Tax Deferral

MULTI-MANAGER EIS PLATFORM TAX BENEFITS

Defer payment of CGT into future years and gain further annual exemptionClaims can be amended up to 5 years after investment is made

EIS investmentCGT liability deferred

2016/7 2017/8 2019/20 2020/21

EIS exits likely to fall across multiple years and therefore multiple CGT annual

exemptions apply

2021/22

£100,000 £100,000 £100,000

Year 1 Year 2 Year 3

£120,000

Year 4

£120,000

Year 5

£120,000

Year 6

Example – family with 2 children at Independent school paying £30,000 per annum:

Invest £100,000 for 3 years and roll investments on maturity

£30,000 £30,000 £30,000 £36,000 £36,000 £36,000

EIS Investment

30% Tax rebate

Case study 2 - school fees planning

Use the 30% tax relief for cash flow purposes e.g. school fees

MULTI-MANAGER EIS PLATFORM TAX BENEFITS

Case study 3 – client with onshore bond

• Client has been drawing 5% and original capital all but depleted

• Client needs to maintain income

5% withdrawals running out

• Concerned about potential IHT liability

Other issues

Case study 3

• £3,000 from pension

Income tax liability

• Current value £100,000• Chargeable gain £80,000• Potential tax liability £16,000

Policy details

• Minimise tax liability for surrender of bond• Minimise potential IHT liability

Objectives

Case study 3: Solution

• Potential tax liability £16,000

Surrender Insurance

policy

• Invest £55,000• Tax rebate £16,500 tax

reliefEIS portfolio

• Invest Balance of proceeds in a BPR portfolioBPR portfolio

Case study 4 – life time allowance

• Above the life time allowance• Close to retirement• Wants IHT efficiency

Client making pensions savings

• Make further pension contributions and pay the 55% tax

• Make EIS investment• Make normal investment

Options

Case Study 4: Comparison of EIS against pension

Pension EISDirect

investmentContribution £40,000 £40,000 £40,000

Tax relief £16,000 £12,000.0 0Net cost £24,000 £28,000.0 £40,000Term 10 10 10Value at end of term £65,155 £65,155 £65,155Return (annual) 5% 5% 5%Less tax £35,835 £0.00 £5,031Net £29,320 £37,155 £60,124Profit £5,320 £37,155 £20,124IRR 2.0% 8.8% 4.2%

BENEFITS OF A PLATFORM

Client investment – clarity on diversification

MULTI-MANAGER EIS PLATFORM HOW KUBER WORKS

Held as cash by independent custodian until fund manager is ready to invest

EIS Portfolio 1

Nominee holds EIS shares on your behalf

EIS Portfolio 2

EIS Portfolio 3

EIS Portfolio 4

EIS Portfolio 5

Your contribution

Key benefits

Simplified administration

Reduction in number of provider

relationships

Allows easy diversification

Ability to reallocate cash

Online consolidated

reporting

MULTI-MANAGER EIS PLATFORM HOW KUBER WORKS

Disclaimer

This Presentation is an exempt financial promotion for the purposes of section 21 Financial Services and Markets Act 2000, by reason of article 16(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, which has been issued by Kuber Ventures Limited, an appointed representative of Sturgeon Ventures LLP, which is authorised and regulated by the Financial Conduct Authority.

The attention of prospective investors is drawn to the fact that amounts invested in Enterprise Investment Scheme (EIS) Funds will be committed to investments which are of a long term and illiquid nature and are therefore not suitable for all investors. Neither the EIS Funds nor the companies in which they invest will be quoted on any regulated exchange or market and, accordingly, there will not be an established or ready market in participations in the EIS Funds or the underlying investments. An investment in the EIS Funds will therefore not be easily realisable before maturity.

This Presentation does not constitute an offer or solicitation in any jurisdiction in which such an offer or solicitation is not authorised or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation. It is the responsibility of each recipient (including those located outside the UK) to satisfy itself as to full compliance with the applicable laws and regulations of any relevant territory in connection with any application to participate in the EIS Funds including obtaining any requisite governmental or other consent and observing any other formality presented in such territory.

You should be aware that investment values and any income from them may go down as well as up and you may not get back the amount you originally invested. No person has been authorised to give any information or make any representation concerning the EIS Funds other than the information contained in this Presentation or in connection with any material or information referred to in it and, if given or made, such information or representation must not be relied upon. In accordance with COBS 2.4 of the FCA Handbook the information has been verified to the best our ability. All statements of opinion or belief contained in this Presentation and all views expressed and statements made regarding future events represent Kuber Ventures Limited’s own assessment and interpretation of information available to them as at the date of this Presentation.

Kuber Ventures Limited is not a tax adviser and you should independently verify the financial planning strategies outlined in this presentation

For Intermediaries and client discussion purposes only

MULTI-MANAGER EIS PLATFORM

Further information

Helpline

• 020 7952 6685

Online resources

• www.kuberventures.com• http://www.theaic.co.uk• http://www.hmrc.gov.uk

CLOSING REMARKS

financial planning – are you utilising eis/seis ... · previously a partner in a leading city law...

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