There are several investment opportunities available, which are tax efficient in the UK.
The main investment opportunities and their tax benefits are summarised below.
Venture Capital Trusts (VCTs)
A VCT is a specialised form of investment trust, which carries certain tax advantages for individuals who subscribe for eligible shares.
If certain conditions are met, a VCT investment can provide the following benefits:
- Income tax relief of 30% is given on investments of up to £200,000;
- Dividends paid by the VCT are exempt from income tax in the hands of the investor;
- Disposals of VCT shares are exempt from Capital Gains Tax meaning that gains are not taxed but that no relief is available for losses either;
Enterprise Investment Schemes (EIS) & Seed Enterprise Investment Scheme (SEIS)
EIS companies are unquoted companies, and tend to be start-up ventures or smaller companies looking to raise venture capital.
The EIS legislation was introduced in order to encourage investment in small UK companies.
Subject to certain conditions being met, EIS and SEIS investments can provide the following benefits:
- Income tax relief of 30% is given on investments of up to £1,000,000 for EIS (£ million if the investment is in qualifying “knowledge intensive” companies);
- Income tax relief of 50% for SEIS on investments of up to £100,000 per annum;
- Disposals of shares are generally free of CGT (if held for 3 years), and any losses are usually allowable against capital gains or income;
- It is possible to defer other CGT liabilities into the acquisition of EIS shares, providing those EIS investments are made within a certain time frame;
- CGT exemption of 50% of other CGT liabilities if you invest in SEIS, subject to certain time frames;
- Potential to carry back EIS/SEIS income tax relief to previous tax year;
- Business property relief from inheritance tax can be available.
Social Investment Tax Relief
Social Investment Tax Relief (SITR) is intended to encourage investments into social enterprises. Income tax relief is available at 30% on investments up to £1million. The investment must be held for at least 3 years. Gains on disposal are also then tax free.
Investors relief gives a reduced 10% CGT rate on up to £10 million of gains on qualifying unlisted company shares. The shares must have been held for at least three years.
Individual Savings Accounts (ISAs)
The allowance (the amount you can invest each tax year) is £20,000.
You can now split the ISA allowance as you wish between a Stocks & Shares ISA and a Cash ISA. There is no capital gains tax and no further tax to pay on income from your investments held within a ISA. Furthermore, there is no tax on withdrawal of funds from the ISA.
You may only invest funds in a ISA if you are UK tax resident. Those who move abroad may retain their ISAs but not invest whilst non-UK tax resident. Whether this is beneficial for a wider tax planning perspective would depend on your personal circumstances and advice should be taken.
Up to certain limits personal pension contributions qualify for tax relief, which increases the value of contributions to your pension fund and/or reduces your tax bill. Please see our separate summary for more details regarding Pension Planning.
Inheritance Tax (IHT)
Certain investments, such as EIS and SEIS investments and shares listed on the AIM market provide tax advantages for IHT purposes, provided they are held for a certain qualifying period. Depending on your circumstances, this type of planning may be appropriate in order to achieve your overall IHT planning objectives. Please click here for more information on IHT Planning.
We are not ourselves registered with the Financial Services Authority to conduct regulated business.
We will work with your Independent Financial Advisor or we can introduce you to an IFA we have worked with in the past who can take care of the FSA aspects.
However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.
If you would like to discuss the tax implications of any of these types of investment, please contact us.