Nearly 60% of HNW investors prefer tax-efficient vehicles to pensions

Piggy-Bank-Savings-UK-700x450.jpgChanges to the pension rules last year are driving investors towards tax-efficient investments with almost 60 per cent planning to invest in such vehicles this year.

A survey by Wealth Club found that 59 per cent of high net worth individuals intend to invest in Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) or Seed Enterprise Investment Schemes (SEIS) in 2017, while 35 per cent say they will cut their pension contributions.

In 2016 pension savers were hit by the tapered annual contribution allowance, which can limit high earners to saving £10,000 per annum, and the reduction in the annual lifetime allowance to £1m.

Ben Yearsley, investment director at Wealth Club, says: “With the introduction of the new restrictive pension rules 10 months ago, investors are looking for alternative ways to invest tax efficiently for their future. VCTs and EIS will probably be the major beneficiaries.

“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 is as low as £10,000.”

However, Yearsley warns the increased demand for VCTs “comes at the wrong time” as many VCT providers have reduced their fundraising efforts following rule changes for the sector in 2015.

He says: “There appears to be less capacity now than in previous years. There is often a high contingent of investors who leave it until the end of March before investing; those investors may very well be disappointed this year.”