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How keeping a year-round focus on tax benefits your clients

Andrew Aldridge | Deepbridge Capital
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17th May 2019
Andrew Aldridge Deepbridge Capital

Now that we’re into a new tax-year, it might well feel that the pressure is off for those advisers who had clients with last-minute tax planning requirements.

There’s no doubting that the lead up to the end of the tax year is an incredibly busy time for all those who are active in the tax-efficient space and we fully understand the reasons for this. However, in our view, there are also significant benefits to be secured if all stakeholders take a regular/year-round view of these opportunities, and not just consider EIS investments, for example, towards the end of the tax year.

Tax-planning has changed significantly in recent times as a result of taxation changes, Government intervention, and the increasingly complex needs of clients. It’s these greater requirements that are shaping financial planning and dictating that tax-planning is often the first point of call for advisers during their client annual reviews.

As we have moved into a new tax year, there will be a large number of clients who not only know their tax position for the previous tax year but also know what is coming over the horizon in the next 12 months. Having this information is incredibly useful for advisers who can utilise tax-efficient investments in order to help reduce or defer the payment of tax by their clients.

There are many benefits to taking such a year-round approach when it comes to tax-planning not least the fact it will get everyone ahead of the game, and will ensure planning is not left to the February/March rush that envelops the market every year.

And when it comes to EIS – and some investment managers like Deepbridge who usually deploy funds on a monthly basis – there is the opportunity to tackle any 2018/19 tax issues right now. Investing clients’ money now and having that almost immediate deployment means clients could be reclaiming tax reliefs in just a matter of weeks, utilising the carry back they can receive.

We talk a lot about speed of deployment in this market because it is so fundamental to the service that advisers can deliver to their clients. They will not welcome an investment recommendation in which the deployment takes an age to take place, because there will clearly be implications for the tax relief available, especially if they have to wait years to secure it.

It’s why we ask advisers to grill their investment managers over when that deployment does take place, and the likelihood of it not meeting the desired timescale of the client. Up front, when it comes to EIS, there are a number of fundamental considerations that all advisers should be taking into account, not least of course whether the investment manager is investing in quality opportunities which adhere to the spirit of EIS and its focus on knowledge intensive investments, but also the speed of deployment of that investment.

A quick deployment dictates, as mentioned, how quickly the client can claim his or her tax reliefs, so investing in an EIS during these Spring months could then be used by the client to reduce a July payment on account. Something that few clients are going to baulk at. Similarly, if an investor has a relatively predictable income or gains, or if they have an expected windfall, it can make good sense to ensure EIS investments are considered at or ahead of time in order to ensure there is no delay in recovering any potential tax reliefs.

Also – looking further ahead – it will also ultimately impact on the exit timescale that managers can put in place for the investment. Investment timelines tend to, of course, be in years rather than months so if the deployment is going way beyond this, then the likelihood is that any return will not be realised until very far into the future.

Overall, it’s a simple tip, but one that can ring true for so many clients, it’s worth repeating. Planning as early as possible will always be beneficial. Wouldn’t you rather your clients were invested in carefully-selected companies, rather than perhaps waiting for a rush and having to opt for those that will ‘just do’? Including tax-efficient investments as part of the regular review where there is a tax need and the client has an appropriate risk rating, should be an essential part of the process for all advisers. 

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