High net worth clients on the hunt for tax efficient savings vehicles following the Budget clampdown on maximum investment plans (MIPs) are likely to turn to enterprise investment schemes (EIS) and venture capital trusts (VCTs), the Prudential has predicted.
Chancellor George Osborne announced earlier this month a new £300 monthly contribution limit on MIPs from April 2013.
Matthew Stephens, head of product and sales technical at Prudential, said high earners had been using MIPs to shelter their income from tax since the annual allowance on pension contributions fell to £50,000 in April 2011.
Providers had been pushing MIPs as a tax efficient vehicle in the run up to the annual allowance cut. Legal & General launched a MIP in 2010.
However, high net worth clients will now look for other tax efficient vehicles, Stephens said.
"EISs and VCTs provide 30% tax relief, so they may become attractive to clients who have already maxed out their tax relief on pensions and ISAs," said Stephens.
He added that the vehicles are higher risk than pensions and ISAs, but that clients who already have sizeable savings may be able to afford the risk.
Stephens also warned that EISs and VCTs may be marketed as lower risk than they truly are to high earners looking for more tax relief.
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