With the tax year end approaching fast have you maximised your tax efficient investments?  Here is a quick rundown of the main areas for you to consider.

 

ISAs

There is an allowance of £20,000 a year per adult.  Don’t forget the Junior ISA limit of £9,000 per annum for minors (aged under 18).  Children aged 16 and 17 may also open an adult Cash ISA of £20,000 each.

 

 

Pensions

You can pay up to £60,000 a year into a money purchase (defined contribution) pension tax efficiently (this is called the annual allowance). Your own personal tax-relievable contributions are capped at 100% of your earnings or £3,600 if more. If you have high earnings, your annual allowance may be reduced to as little as £10,000 per annum. If you have flexibly accessed a money purchase pension you will be subject to the £10,000 Money Purchase Annual Allowance.

There is a different calculation of the amount to be tested against the annual allowance for final salary (defined benefit) pension scheme members but the same limit applies except for certain exempt individuals.

Like ISAs, there are Junior pensions available for children who are minors (aged under 18).  The annual limit is £3,600 unless the child has earnings of their own that exceed £3,600pa in which case the limit on tax-relievable personal contributions is 100% of earnings.

 

 

VCTs

VCTs or Venture Capital Trusts have an annual subscription limit of £200,000.  Income Tax relief of up to 30% is available.  Some ISA providers allow investment into a VCT from your ISA.  Dividends are free of tax.

 

EIS

You can invest up to £1 million into an Enterprise Investment Scheme (EIS) each tax year and up to £2 million as long as at least £1 million is invested in a Knowledge Intensive Company (KIC).  It is possible to defer Capital Gains Tax with an EIS too.  EIS shares are also usually free of Capital Gains Tax.  There is Income Tax relief of up to 30% available.

 

SEIS

You can invest a maximum of £200,000 in a Seed EIS (SEIS) per tax year.  Tax reliefs as follows;

  • Up to 50% Income Tax relief
  • Tax-free growth
  • Up to 50% Capital Gains Tax reinvestment relief
  • Inheritance Tax relief
  • Loss relief on exit

 

It is important to understand that VCTs, EIS and SEIS are high-risk investments and only really suitable for high earning individuals who have a high attitude to investment risk.  Income Tax relief on such investments is given as a so-called tax reducer.  There is no requirement to have qualifying earned income from employment or self-employment unlike for pensions.  The amount of tax relief is limited to the amount of tax paid in the year of investment (or previous year for EIS/SEIS if carried back).

 

So if you have cash available to invest before 6 April do seriously consider maximising the amount you can pay into any of these schemes. You know it makes sense.*

 

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions. The FCA does not regulate tax planning.

 

EIS/SEIS/VCT

Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you are unlikely to be protected if something goes wrong. VCTs are high-risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital. 

 

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