Late last year we bore witness to the Labour government’s budget, to some acclaim or some disdain depending on where your personal views lie. What is for certain is that there is a new tax landscape for financial planners to navigate.

The main areas of contention that I’ve been seeing crop up on LinkedIn are related to IHT and Capital Gains Tax, both having their rules revised in the budget. Business Relief (BR) has been reformed with the introduction of an allowance, alongside a reduction in IHT relief on AIM BR shares. It is also looking likely that private pensions will be brought into an individual’s estate for IHT purposes, although at the time of writing the outcome of the consultation had not been made public.

So what can financial planners do?

Some of the key budget areas can be addressed somewhat by more esoteric products, namely EIS and VCT, both of which offer attractive tax advantages to those clients where ‘vanilla’ financial planning doesn’t quite cut it.

As a quick recap, EIS’ offers 30% income tax relief in the year qualifying shares are purchased (providing they are retained for at least 3 years to avoid clawback) with a maximum contribution of £1m per year (and £2m for knowledge-intensive EIS’), CGT deferral and loss-relief as well as offering a BR-qualifying portfolio.

VCTs can also provide up to 30% income tax relief on contributions up to £200k per year(provided the shares are held for 5 full years, otherwise the relief will be clawed back by HMRC), along with tax-free capital gains and tax-free dividends– the latter two being particularly useful given the dramatic reductions in allowances for unwrapped investments.

We recently hosted a webinar in which Mark Brownridge from Blackfinch and Caragh O’Shaughnessy from Puma Investments provided their insight and commentary on the subject.

Mark presented this very useful comparison table of tax wrappers and tax-advantaged portfolios as part of Blackfinch’s presentation on EIS’.

EIS and VCT portfolios do not come without their risks, though, and planners should ensure that both the firm and the end client are comfortable with the underlying investment strategy and the risks being taken. An important point highlighted by Caragh is that one of the main considerations around assessing a product for suitability should be the characteristics of the underlying investment portfolio, perhaps even over and above factors like a provider’s experience in the area and their assets under management. Investment objectives can vary wildly between provider (and even within a provider’s range if they have more than one offering) in terms of the instruments they are using and areas they are investing in. Some VCT portfolios may choose to invest in scale-ups rather than start-ups, which should give rise to a relatively stable, dividend-yielding portfolio as opposed to targeting high levels of capital growth. Under Consumer Duty, it is up to the adviser to be assessing these strategies for their suitability to help prevent foreseeable harm to the end client.

However, the generous tax advantages on offer can make a compelling proposition for those clients who have high earnings and / or significant accumulated wealth, as well as the capacity for loss and sufficient time on their side. There is a sunset clause on tax relief schemes like EIS andVCT that ensures the tax reliefs will remain in place until at least 2035. This is crucial in supporting the flow of funds into start-up and early-stage companies in the UK, supporting and backing British business whilst also benefitting from personal tax reliefs as a reward for doing so.