Prohibitive PI costs limiting VCT and EIS sales

17 July 2018, 10:26am

Richard Hoskins, Co-founder, Kin Capital was quoted in the FT Adviser. An extract of the article is below, please see the original article here.

The “prohibitive” cost of professional indemnity (PI) insurance is preventing advisers from recommending venture capital trusts (VCTs) and other tax-efficient investments… and the most frequent reason advisers give for not moving clients into tax efficient investment products is the increased professional indemnity insurance premiums they must pay if they recommend these deals.

“The products are higher risk, and many advisers at smaller firms may not be able to do the due diligence on the VCT, or on the companies. That leads to concern from the (professional indemnity) insurance providers and makes the cost (of recommending VCTs) prohibitive.”

Richard Hoskins, co-founder at Kin Capital, said: “The challenge is ‘tax efficiency’ has become too closely associated with tax avoidance; there is a difference.

“Investors in aggressive tax partnership structures shouldn’t be surprised to see themselves on the front pages of the tabloids. Enterprise investment schemes (EIS) and VCTs are very, very different and unlikely to cause a professional indemnity insurer a problem.

“Over a three-year period, the Financial Ombudsman Service received more complaints about advisers recommending contents insurance than VCT and EIS.

“PI insurers are happy to take risk, providing they can understand and price it. The problem is most insurers don’t understand the risks. It is easier for them to say ‘no’.”

He added a hike in professional indemnity insurance premiums is more typically a problem for advisers wishing to recommend EIS products than VCTs.

See the full article here.

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