HNW investors shifting focus to private assets and BTL after using up tax-efficient vehicles

High net worth (HNW) investors that have used up their ISA and pension allowances are pivoting to buy-to-let (BTL) property and tax-advantaged company investments, analysis from Rathbones has shown.

The wealth management firm surveyed over 3,000 wealthy investors and found that investment behaviour changed significantly once tax-efficient options had run dry, with wealthier investors far more likely to embrace complexity and risk in search of higher returns.

Investment in BTL properties increased sharply with greater wealth, rising from 4 per cent of investors with £25,000-£250,000 in investable assets to 35 per cent of those with more than £2.5m.

Allocations to tax-advantaged company investments, such as venture capital trusts (VCT) and the Enterprise Investment Scheme (EIS), told a similar story, increasing from 2 per cent at the lower end of the wealth scale to 25 per cent of wealthier respondents.

Beyond these investments, Rathbones found an increase in the use of higher risk alternative assets as wealth grew.

Adoption of peer-to-peer lending, cryptocurrencies and unquoted shares rose from 5 per cent of investors with £25,000–£250,000, to 14 per cent for people with £500,000–£1m, and 25 per cent among those with more than £2.5m.

The use of other taxable investment accounts, such as holding shares, bonds and funds, also increased as wealth rose.

Under a third (31 per cent) of those in the lowest wealth bracket made use of such investments, compared to 54 per cent of those with £250,000 to £500,000 and 69 per cent of people with investable assets of between £500,000 and £1m.

However, while Rathbones noted the growing interest in higher risk assets, cash remained a cornerstone of UK portfolios.

Almost all (94 per cent) investors had savings accounts or Premium Bonds, rising to between 95 per cent and 97 per cent among the wealthiest investors.

Rathbones senior investment director, Isabella Galliers-Pratt, commented: “Once they’ve used ISA and pension allowances, the next question we hear from clients is: where does my next pound go?

“As wealth increases, investors are more willing and able to take on higher levels of risk. Greater financial resilience gives them the confidence to explore opportunities beyond mainstream wrappers.

“The right route depends on time horizon, risk tolerance and personal tax circumstances. It’s important to balance the understandable desire to shelter investments from tax with the risks involved. Paying tax isn’t a bad thing – it typically means your investments have performed well.”

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