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Business Tips

Tax Efficient Investments business tips

There are a number of investments which benefit from tax efficient status.

The first of these tax efficient schemes is an Individual Savings Account (ISA). These are widely available from high street banks and building societies. Returns (interest, dividends and capital gains) from the ISA are normally free of income tax and Capital Gains Tax. The maximum that can be contributed to an ISA annually currently stands at £11,280, of which a maximum of £5,640 can be from a cash ISA. The remaining amount can be made up of a stocks and shares ISA. For those under 18 but older than 16, they can have a Junior ISA which has an annual maximum investment of £3,600.

Another type of efficient scheme is the Enterprise Investment Scheme (EIS). This generally involves investment in shares in companies that are small and unquoted. The benefits of investing in an EIS scheme is the income tax liability in year of subscription is reduced, gains on the sale of shares is tax free and other gains can be deferred. The main relief comes in the form of an income tax relief which is the lower of:

  • 30% of the amount subscribed in an EIS scheme (maximum £1 million)
  • An amount which reduces the income tax liability to nil.

Another option is Venture Capital Trusts (VCTs). Investing in a VCT means you are investing in a portfolio of EIS-type companies and just like the EIS, investing in these do benefit from certain reliefs. Just like EIS schemes, the income tax liability is reduced in the year of subscription (this is the lower of 30% of the amount subscribed with the maximum qualifying subscription being £200,000 and the individuals tax liability), any gain on the sale is tax free, and the dividends from the first £200,000 invested per tax year is tax free.

These are just a few of the tax efficient schemes that you could invest in to reduce your income tax liability. If you would like more information about the above, or would simply like more information about how they could benefit you, then please feel free to contact Wisteria on 020 8429 9245 or email info@wisteria.co.uk.