Tax-efficient investments

One of the simplest tax-efficient investments are Individual Savings Accounts or ISAs, which allow savers to invest up to a certain amount each year without paying income tax on the interest or any increase in the value of investments.

From 1 July this year, ISAs were rebranded as New ISAs, or NISAs, reflecting a significant increase in investment limits and greater flexibility.

Savers can now split the amount they pay into their NISA between a cash NISA and a stocks and shares NISA as they wish, up a new overall annual NISA limit of £15,000. Previously, it was only possible to save up to half the annual ISA subscription limit into a cash ISA.

The amount that can be paid into a Junior ISA is also increasing. From 1 July, the amount that can be paid in during 2014-15 will rise to £4,000.

Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) investments are more complex but can be a useful option in income tax planning, profit extraction and capital gains tax and inheritance tax (IHT) planning.

The schemes are designed to encourage investors to buy shares in smaller, higher-risk, qualifying companies, enabling them to raise finance for growth. A simplified summary of some of these schemes’ key features is provided below.

VCT investments provide:

  • 30 per cent income tax relief on the amount subscribed (up to a maximum of £200,000 per tax year) provided the shares are held for at least five years
  • tax-free dividends
  • tax-free capital gains on the disposal of shares.

EIS offers:

  • income tax relief of 30 per cent subject to shares being held for a minimum of three years
  • capital gains tax exemption, provided the shares are held for at least three years
  • certain capital gains tax deferral benefits
  • up to 100 per cent business property relief, exempting the assets from inheritance tax, when they have been held at least two years.

Features of SEIS investments include:

  • 50 per cent income tax relief on investments of up to £100,000 a year, provided the shares are held for at least three years
  • capital gains tax exemption, provided the shares are held for at least three years
  • 50 per cent capital gains tax relief on the disposal of other assets providing gains are reinvested in SEIS investments
  • up to 100 per cent business property relief, exempting the assets from inheritance tax, when they have been held at least two years.

It is important to remember that these are longer-term investments that are generally considered to involve a higher risk. The tax benefits they offer are also subject to change and these benefits should only be one factor in deciding whether these investments are right for you, your financial goals and attitude to risk.

For more information on our tax-efficient investment services in East London and Essex, please contact us.