For the majority of investors trying to minimise the tax you pay is not avoidance but common sense, and the ways in which the government allows you to do it, and in the case of EISs and VCTs encourage you to do it through generous tax reliefs, can paint a confusing picture for some of us.

Finding ways to stay tax efficient

The key is perhaps to keep it simple. David Kaye, chief executive at Puma Investments, suggests most people start with Isas and pensions. But he adds: “When you’ve ticked those boxes in terms of Isas and pensions, and you’re not even a high net worth individual, you very quickly you run out of options for tax-efficient investing.”

The changes to pension limits, including the annual allowance falling to £40,000 and the lifetime allowance being lowered to £1.25m, are also a potential trigger for investors to seek alternatives.

Options in terms of investment products include EISs and VCTs, while there are tax relief strategies for inheritance tax and capital gains tax that are there for the taking if you know what to look for and more importantly whether it is worth using.

Like most investments EISs and VCTs come in a range of strategies and risk profiles, from the generalist to the specialist. It is in the specialist VCT sector that the chancellor added a twist by announcing a change to the investment rules to “exclude companies benefiting from Renewables Obligation Certificates and/or the Renewable Heat Incentive scheme”. This will also apply to Seed EISs.

With renewable energy being one of the most popular areas for investment, this has raised some uncertainty and concerns about how it will affect future strategies of these funds.

The one thing that remains clear is there are ways to mitigate tax and make money, or preserve capital, depending on what the client’s objective is.

As Mr Kaye points out: “None of this is low risk. Investors should be looking first and foremost at track record, are they backing a manager that has demonstrated they can deliver. The market is a mature market now and there are people that have done very well, and some that haven’t.

Profiles for the future

“They should also be looking at risk profiles, do they want high growth, high return, do they want lower risk and a more capital preservation style. Because of the high-profile tax-avoidance cases people are seeking the safe haven of HMRC approved government backed schemes to encourage investment in UK businesses.”

But he adds: “All of the tax benefits are secondary to whether the actual investment makes sense. You are taking a risk by going into a VCT and EIS so you should be comfortable with that risk, no matter how good the tax relief you should be happy with the investment strategy.

“That is something people need to remember. If it didn’t have this tax relief, would this make sense as an investment? Then the tax benefits are exactly that, they are – benefits.”

Nyree Stewart is features editor at Investment Adviser