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Personal Wealth » Wealth Management » Tax Efficient Specialist Investments

Tax Efficient Specialist Investments

Tax can be a real drain on your wealth.

However, it's in the government's interest for small businesses to succeed, but companies often find it difficult raising capital. So, to encourage private investors the government introduced a range of generous tax incentives to encourage private investment.

Enterprise Investment Schemes

Enterprise Investment Schemes (EIS) are normally designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

Enterprise Investment Schemes (EIS) are therefore one of the most tax-efficient investment products available to UK investors.

Enterprise Investment Schemes offer multiple tax benefits:

 30% upfront income tax relief provided the investment is held for three years. Investors receive tax relief of       30% of the amount invested, up to £1,000,000 per year, against their income tax bill for this year (or the last tax year, if you choose);
   Unlimited deferral of Capital Gains Tax (if gain within the last 3 years).
 Exemption from Capital Gains Tax and gains made from the investment after 3 years.
 100% Inheritance Tax relief after 2 years by way of business property relief.

However, this product by its very nature is of a high risk status and whilst it provides Income tax relief and the potential for Inheritance tax mitigation you could have an eventual outcome of loss of all capital invested. If you are prepared to accept the associated investment risk, with an EIS your investment will be outside of your estate for Inheritance Tax Purposes within 2 years, whereas, with a gift or trust solution utilising a bond it would normally take 7 years for the investment to be outside of your estate.

Venture Capital Trusts

Venture Capital Trusts (VCT) are normally designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange. So, if you invest in a VCT, you spread the investment risk over a number of companies.

VCTs must be approved by HMRC and approval is only given if certain conditions are met.

You have to hold a new VCT investment for a minimum of five years (or death if sooner) to benefit from the following tax reliefs:

•  30% upfront income tax relief (limited to the amount of income tax payable for the year or £60,000) whether at the lower, basic or higher rate.
•  tax-free dividends
•  tax-free capital gains (when you sell your shares)

VCTs invest in some of the most dynamic, entrepreneurial, high growth companies therefore they are high risk. They are long term speculative investments, this means they are aimed at sophisticated investors who can and tie up their capital and carry the associated financial risks.

Stocks and Shares Individual Savings Accounts

An Individual Savings Account (ISA) is not an investment itself. It is a tax wrapper surrounding your fund choices that makes them more tax efficient.

There are two key tax advantages to putting share investments in an ISA wrapper.

•  Any profits made from share price increases aren’t eligible for capital gains tax no matter how much your investment grows or how much you take out over the years .
•  The tax paid on bonds can be reclaimed.
•  It  should be noted that some tax is still paid on dividend income from the shares held within an ISA.
•  You can invest up to £15,240 in a Stocks and Shares ISA this tax year (15/16) and £20,000 (17/18)
•  Alternatively you can invest this amount in a Cash ISA .
•  You do not have to mention your ISA on your tax return.

ISAs are very flexible, and can be suitable for any long-term savings need and  have no fixed investment term, If you can be flexible about when you need your money, and are prepared to accept some risk, a stocks and shares ISA may be a good idea. They are tax efficient, and could provide a greater return than a Cash ISA if the company or fund you invest in performs well.

Please contact one of our Chartered Financial Planners to see how you could benefit from these opportunities……

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