1. STEP - Tax Led Investments Alex Nicklin- Financial Planner & Wealth Manager 5 March 2015 1

2. Risk Warning Tax Led Investments are potentially higher-risk, longer-term and less liquid investments; investors may get back less than expected and may have difficulties selling their investment Tax Led Investments should only be considered once other planning opportunities have been fully explored The levels and basis of taxation may be subject to change and may impact negatively on any Tax Led Investment Any tax treatment depends on the individual circumstances of each investor and may be subject to change These investments may lose their tax status through decisions made by the investment manager You are encouraged to seek independent tax advice before considering these investments Tax Led Investments should form only a small part of the client’s portfolio This presentation/article/document is solely for professional advisers and should not be construed as investment advice 2

3. Agenda 3 1.Tax Led Investments 1.What are they? 2.VCT, EIS, and BPR compared 3.Risks and risk mitigation 4.Who benefits? 2.Tax Led Solutions 1.Before and after retirement 2.Estate planning 3.Tax planning 3.Tax Led Service 1.How do we select suitable investments?

4. Tax Led Investments – what are they? 4 VCTEIS Introduced in 1995Introduced in 1994 PLCs Listed on London Stock Exchange Unquoted (including AIM) Gross assets of ≤ £15 million before and ≤ £16 million after investment ≤ 250 employees Investee companies can receive ≤ £5 million per 12 months Investee companies need HMRC approval VCT need to maintain qualifying status to give tax benefits to investors EIS needs to maintain qualifying status to give tax benefits to investors Evergreen or planned exit Generalist, AIM, Specialist, Technology Company onlyCompany, Fund, Portfolio Service

5. Tax Led Investments – Comparison 5 BenefitsVCTEISBPR Maximum investment£200,000£1 millionUnlimited Minimum holding period 5 years3 years2 years Initial income tax relief30% 0% Carry backNoYesNo Capital gains tax deferral NoYesNo Tax free incomeYesNoForestry only Tax Free capital gainsYes Forestry only Free of inheritance taxNoYes Loss reliefNoYesPossibly

6. Tax Led Investments – examples VCTEISBPR 6

7. Text separate from box Tax Led Investments – what risks? RisksRisk mitigation Investment Risk Smaller and less mature companies Investment Risk Due diligence Diversification of investments Liquidity Risk Minimum holding period of 2,3 or 5 years Limited secondary market Liquidity Risk Planned exit EIS VCTs with buy-back policy BPR with minimum 6 month liquidity Regulatory Risk Changes to tax treatment Changes to qualifying rules Regulatory Risk Understanding FCA and HMRC policy Anticipating rule changes 7

8. Tax Led Service – who benefits? FCA Definition Net Investable assets exclude Primary residence or any money raised through a loan secured on that property; Any rights under a qualifying contract of insurance; or Any benefits (in the form of pensions or otherwise) which are payable on the termination of service or on death or retirement FCA Developments Potential to increase the HNW criteria in line with USA and EU Exceptions Clients may invests more than 10% of their net assets when this does not impact on their (long-term) cash flow and/or capacity for loss Minimum criteriaTowryFCA Client categorizationOrdinary Retail Investor Annual income£150,000(HNW £100,000) Net investable assets£1 million(HNW £250,000) Minimum investment£60,000(N/A) Ability to reclaim income tax relief 30%(N/A) Asset allocation10%(N/A) Risk appetiteSpeculative(N/A) 8

9. Tax Led Investments – EIS Loss Relief EIS InvestmentsInvestment 1Investment 2Investment 3Investment 4Investment 5Total Investment10,000 50,000 30% income tax relief3,000 15,000 Net cost7,000 35,000 Performance-100%-50%0%+50%+100%0% Proceeds-5,00010,00015,00020,00050,000 Loss/gain-7,000-2,0003,0008,00013,00015,000 Loss relief @ 45%3,150900---4,050 Net loss/gain (£)-3,850-1,1003,0008,00013,00019,050 Net loss/gain (%)-38.5%-11%+30%+80%+130%+38.1% Above calculations based on a 45% taxpayer receiving loss relief at their marginal rate. 9

10. Tax Led Solutions – before retirement VCT Example Client restricted by lower pension contribution levels Concerned over income levels in retirement Financial planning indicates gap in retirement funding of £300,000 Adviser recommends £75,000 in VCTs per year for 4 years Investment£75,000 Income Tax relief£22,500 After 4 years VCT Portfolio£300,000 Income @ 5% p/a£15,000 Tax relief is re-invested in SIPP and ISA of client (and spouse) 10

11. Tax Led Solutions – before retirement 11

12. Tax Led Solutions – tax planning £30,000 £100,000 Year 1 Year 2 Year 3 £100,000 Year 5 £100,000 Year 6 £100,000 Year 7 £30,000 EIS Investment 30% income tax Rolling EIS investment program 12

13. Tax Led Solutions – before retirement EIS Example Client not started a retirement plan yet Client restricted by lower pension contribution levels Financial planning indicates gap in retirement funding of £785,000 Adviser recommends £70,000 in EIS per year for 24 years using 4-year rolling EIS investment programme Investment£70,000 Income Tax relief£21,000 Pension contribution£26,250 (gross) ISA contribution£6,563 After 24 yearsRetirement fund of £787,500 EIS Portfolio of £280,000 13

14. Tax Led Solutions – at retirement Tax Free Retirement The client has a SIPP valued at £1.2 million qualifies for state pension takes £300,000 (25%) and draws down balance at £60,000 p/a will have annual taxable income of £56,000 (excl personal allowance) will have a net income of £49,000 and an income tax bill of £16,000 The adviser recommends £56,000 in EIS per year indefinitely using 4-year rolling EIS investment programme Investment£56,000 Income tax relief£16,800 Annual tax free income£65,000 NBAll figures are approximate 14

15. Tax Led Solutions – after retirement Flexible Drawdown and EIS Client has a SIPP valued at £300,000 and £285,000 spare cash Client is suitable for flexible drawdown Financial planning indicates no need for funds Client is concerned about paying 45% income tax on drawdown Client also concerned about paying 55% in inheritance tax Adviser recommends £100,000 drawdown per year for 3 years Adviser recommends £150,000 in EIS per year for 3 years Drawdown£100,000Investment£55,000 (proceeds) £95,000 (spare cash) £150,000 Tax charge£45,000Tax break£45,000 Net costNIL 15

16. Tax Led Solutions – estate planning Tax Led Gifting Client is 75 years old and has 2 children Client holds £100,000 in VCTs providing £5,000 tax free income Financial planning indicates no need for income Total estate value £1 million Adviser recommends gifting of VCTs 50/50 to children After 7 years estate worth £900,000 Client has saved £40,000 on IHT Children have each received £17,500 tax free income over 7 years 16

17. Tax Led Solutions – estate planning Estate Planning and EIS Client is 70 years old Client has an estate worth £2 million Client pays £30,000 per year in income tax on pension (and other) income Client is concerned about inheritance tax liability Adviser recommends a series of conventional estate planning solutions Client becomes concerned about losing too much control Adviser also recommends an EIS investment Investment:£200,000 Income tax relief:£60,000 IHT relief:£80,000 17

18. Tax Led Solutions – School Fees Tax Efficient School Fee Planning Client is concerned about future school fees for his child Adviser recommends £85,000 in EIS per year for the duration of the child’s education using 4-year rolling EIS investment programme After the child finishes their education the client discontinues the re- investment programme (or continues this into retirement) Investment:£85,000 Income tax relief:£25,500 School fees:£25,000 18

19. Tax Led Solutions – tax planning Profit extractionDo nothing (£)Invest in EIS (£) Company profit before tax100,000 Corporation tax @ 20%(20,000) Company profit after tax£80,000 Extract dividend£80,000 Invest in EIS(£80,000) Dividend income tax @ 25% (£20,000) EIS income tax relief @ 30% £24,000 Return of EIS funds after 3 years £80,000 Net cash in bank£60,000£84,000 19

20. Tax Led Solutions –Business Investment Relief Investment Management Services Core services Client Value 20

21. Tax Led Service – selection process Application of minimum selection criteria to whole of market Product Selection Committee VCTEIS No capital growthNo capital growth or single companies ≥ 7 year experience≥ 4 year experience ≥ £10 million AUM≥ £3 million AUM ≥ 10 investee companies≥ 4 investee companies < 5% initial; < 4% annual< 5% initial; < 3% annual Dividend & buy-back policyHMRC Advance Assurance ≥ 84% rating by Tax Shelter Report Reviewed by Tax Shelter Report 21

22. 22 Questions?

23. @Towrywealth Towry Ltd, 3 rd Floor, Portwall Place, Portwall Lane Bristol BS1 6NA www.towry.com 23 Thank you