Investments - are yours tax efficient?
There are a wide range of investments available and we consider some of the main ones with special tax rules.
Individual Savings Accounts
Individual Savings Accounts (ISAs) provide a form of investment which is tax free for both income tax and capital gains tax. The maximum investment limits are set for each tax year, therefore to take advantage of the limits available for 2016/17 the investment(s) must be made by 5 April 2017. An individual aged 18 or over may invest in one cash, one stocks and shares and one innovative finance ISA per tax year. The overall total investment is £15,240.
Bear in mind when considering whether to utilise the ISA investment limit in the current year that with effect from 6 April 2017, the overall ISA subscription limit will rise from £20,000.
Also the new Lifetime ISA will also be introduced in 2017/18. This is intended to allow adults aged under 40 to save up to £4,000 a year towards buying their first home (up to a limit of £450,000), or to save towards their retirement.
Other investments with tax reliefs
A Venture Capital Trust (VCT) invests in the shares of unquoted trading companies. An investor in the shares of a VCT will be exempt from tax on dividends (although the tax credits are not repayable) and on any capital gains arising from disposal of shares in the VCT. Income tax relief at 30% is available on subscriptions for VCT shares up to £200,000 per tax year so long as the shares are held for at least five years.
Both the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) allow income tax relief on new equity investment (in qualifying unquoted trading companies). For EIS that is 30% relief on investments of up to £1 million and for SEIS up to 50% relief on £100,000. CGT exemption is given on qualifying shares held for at least three years.
Capital gains realised on the sale of any chargeable asset (including quoted shares, holiday homes etc) can be deferred where gains are reinvested in EIS shares.
A capital gain may be relieved potentially saving up to 14% CGT where a qualifying investment is made in the SEIS.