A bit about wrappers

This section is not supposed to be an exhaustive look at all the different sorts of ways of investing, is very UK centric (it’s our home market) and, above all, is not advice on the most tax efficient way of investing for you – that is another job for your financial adviser.

“Wrappers” are the tax efficient schemes that have been established by the government to promote various forms of investment.

ISAs (Individual Savings Accounts) allow you to invest amounts of money up to an upper limit, set by the government each year, in cash (including now peer-to-peer lending) or shares (which can include investments in open-ended funds and investment companies) or both. The attraction is that you don’t have to pay capital gains tax on the money you make and you don’t have to pay income tax on the dividends and interest you receive. Plus you can cash them in any time you like. Here’s a link to the rules.

SIPPs (Self Invested Personal Pensions) have all the attractions of ISAs, plus you can offset the money you pay into them against your income tax bill (subject to limits). However, taking money out of them again before retirement age doesn’t usually make sense from a tax point of view. There are some rules and regulations about what you are allowed to hold inside SIPPs and not every SIPP provider will be able to handle investments into every asset class. Here’s a link to the relevant page on the Money Advice Service website.

In an attempt to channel a chunk of the Nation’s savings into supporting small businesses, the government has established a number of tax advantageous schemes:

VCTs (Venture Capital Trusts) are diversified funds. Here’s a link to the relevant page on the HMRC site. Note the reference on here to investment in “small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange“. It is not uncommon for businesses that VCTs invest in to go bust.

EIS (Enterprise Investment Schemes) invest in individual small, high-risk, trading companies and so, because they don’t have the diversification benefits of investing through a VCT, should be considered to be riskier than VCTs. Here’s a link to the relevant page on the HMRC site. In the 2018 budget, the Chancellor announced that, from 2020, at least 80% of funds raised by EIS funds must be invested in knowledge-intensive companies.

SEIS (Seed Enterprise Investment Schemes) are a souped-up version of EIS. Here’s a link to the relevant page on the HMRC site.

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