In our second blog, we’re focusing on how you can reduce your tax liability for the year using tax efficient investments.
Enterprise Investment Scheme (EIS) & Seed Enterprise Investment Scheme (SEIS):
Tax relief is available where you subscribe for shares qualifying for EIS or SEIS relief.
Under EIS your tax liability is reduced by 30% of the sum invested (up to a maximum investment of £1m in the year). The relief can also be carried back to the previous year. Additionally, capital gains made on asset disposals in the previous 12 months or following 36 months may be reinvested into EIS shares resulting in a deferral of the original gain already made. There is an increased investment limit of £2m if the company is classed as a Knowledge Intensive Company. In very broad terms, a KIC is one that invests in intellectual property.
Under SEIS you receive income tax relief at 50% of the sum invested (up to a maximum investment of £100k in the year). This relief can also be carried back one year. SEIS reinvestment relief provides a capital gains tax exemption against other taxable gains made in the year. Where such gains are reinvested in new SEIS shares 50% of the gains reinvested will be exempt.
Both EIS and SEIS shares are usually exempt from CGT and IHT provided certain detailed conditions are met.
Venture Capital Trusts (VCT):
Investments in VCT companies attract income tax relief at 30% on qualifying investments of up to £200,000. Dividends received from the fund are also tax free on the first £200,000 invested.
Provided the relevant conditions are met, any gains made on sale of the VCT shares will be free from capital gains tax.
Higher and additional rate taxpayers with surplus income should consider making additional pension contributions (subject to overriding limits) which will extend their basic and higher rate tax bands, meaning an overall lower marginal tax rate.
How Hallidays can help
By adopting some of the pre-year end tax planning measures identified in our blogs you may be able to reduce your overall tax liability for the year. If you’d like further support with your tax planning please contact our specialist tax experts on 0161 476 8276, email email@example.com or visit https://www.hallidays.co.uk/services/taxation to learn more about how we can help.