There are huge sums of money at stake. In 2008 alone HM Revenue & Customs netted £3.8billion form this one tax.

Traditional inheritance tax planning techniques take up to 7 years to become fully effective, which is no good for people who want to know their estate is protected before then.

There is now a plethora of financial planning products which promise to reduce a tax payer’s inheritance tax liability. Those making use of the Business Property Relief opportunities mean that such investments which qualify can offer full relief of inheritance tax after only two years.

Unfortunately, too many inheritance tax based investments fail to realise that the number one priority of many an investor seeking to mitigate his or her inheritance tax liability is to also preserve capital and restrict real investment risk. Investments that are asset backed or with strong contractual revenue streams can help to fulfil these objectives.

After all, the very reason such an individual is in the market for an inheritance tax mitigating product in the first place is the fact that they want to preserve the value of their estate as much as possible.

Edge Performance VCT F Share – Raised £19.3m and £10.7m of capacity left.

Ventus VCT 1 and 2 – Raised £4.7m and £5.3m of capacity left

Like pensions, VCTs entitle investors to income tax relief on their investment. For the last four tax years the VCT tax relief has been at the rate of 30% of the investment (up to a maximum investment of £200,000 per tax year), whereas tax relief on pensions investment has been at investors’ marginal rate of tax – so higher rate tax payers could receive tax relief on pension contributions at 40%.

From 6 April 2011, however, people with taxable income of £150,000 or more per annum will see the rate of tax relief on pension contributions taper downwards, so that once their income reaches £180,000, they will receive tax relief at a rate of only 20% (on their total contribution).

Between 6 April 2009 and 5 April 2011 the so-called “antiforestalling” provisions may restrict the amount of pension contributions attracting tax relief at 40%, for people with taxable income of £150,000 or more per annum, to a maximum of £30,000 and in some cases only £20,000. In circumstances where pension contributions will receive tax relief at only 20%, the 30% income tax relief on VCTs is an attractive alternative.

In addition, VCTs have other benefits when compared to pensions. For example, dividends paid by VCTs are tax-free (on VCT investment of up to £200,000 per tax year), whereas income from a pension is taxed at the investor’s marginal rate of tax. Furthermore, income can be distributed by a VCT from the date of investment in the form of dividends, whereas complex rules restrict the ability of investors to take income from a pension.

If you are interested in using VCT investment as an alternative to investing in a pension, we strongly recommend that you consult one of our Chartered Financial Planners who will be able to assess your position and explain the risks, appropriateness and opportunities available, a well as the tax benefits.