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 loss relief is not available;
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;
- Income tax relief of 50% for SEIS on investments of up to £100,000 per annum;
- Disposals of shares are generally free of Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... (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.
New Individual Savings Accounts (NISAs)
NISAs replaced ISAs from 1 July 2014. The NISA allowance (the amount you can invest each tax year) is £15,000.
Under the new rules you can now split the NISA allowance as you wish between a Stocks & Shares NISA and a Cash NISA. There is no Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... and no further tax to pay on income from your investments held within a NISA.
Other types of less common tax efficient investment include Enterprise Zone Property Unit Trusts (EZPUTS) and Business Premises Renovation Allowance (BPRA).
An EZPUT is an unauthorised unit trust, which is invested entirely in property in Enterprise Zones. These investments take advantage of the generous capital allowances available to encourage regeneration in the government nominated Enterprise Zones. The BPRA is a government initiative to encourage conversion and renovation of empty business properties in designated areas. BPRA Investments can provide up to 100 per cent tax relief to property owners for qualifying capital expenditure.
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 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.