Advisers are slowly waking up to the realisation that an investment in an EIS scheme is a great way of IHT planning. The investment falls outside their client's estate two years after investment; there's nothing else on the market that can deliver that much relief in such a short time span.

In this, the last part of the Questions and Answers Series, Julian Hickman aims to answer a question recently posed to him by IFAs relating to the EIS scheme and the IHT opportunities associated with it.

Question 5: I understand that an EIS investment can be used as part of IHT planning for a client. How exactly does this work?

Julian's answer: Strictly speaking, it is not EIS that offers IHT relief, but direct investment into unquoted companies that qualifies for 100% Business Property Relief, once they have been held for 2 years. However, as most EIS investments are made into unquoted companies, an EIS investment generally means the investor will be entitled to IHT relief. There is no limit on the amount that can be invested into an EIS Fund and subsequently gain IHT relief. Effectively this means that an investment into an EIS fund qualifies for 100% BPR once they pass the second anniversary of the date of investment. It is worth just pausing here because EIS funds are NOT like Unit Trusts which are usually fully invested at the point at which you invest. An EIS fund starts with no holdings and begins investing the moment it closes/you subscribe. In the case of an Approved EIS fund, it can take up to 10 months to complete the fund's investment. For an investment of 750,000 full IHT relief will be achieved at something between 2 and 3 years from the date the investment is made.

This is the last instalment of Julian's IFA Questions and Answers session for this tax year but Julian will be back again in April answering more questions on the topic of EIS and Venture Capital investment. Watch this space....

If you have any questions relating to EIS and want to be part of future Questions and Answers series' please email them to nrobson@longbow.co.uk or post a comment below.