PART 4 – Reliefs for tax efficient investments

Parts 1, 2 and 3 of this series considered the tax savings of pension contributions, charitable donations and what else you can do to ensure your entitlement to the personal allowance of £12,500.

The final part of this series looks at a number of investments that qualify for favourable tax treatment, these include:

  • Individual Savings Accounts (ISAs)
  • National Savings and Investments Premium Bonds
  • National Savings and Investments Savings certificates
  • Enterprise Investment Scheme (EIS)
  • Seed Enterprise Investment Scheme (SEIS)
  • Social Investment Tax Relief (SITR)
  • Venture Capital Trusts (VCTs)

Many of you will be aware that interest (and/or dividends) generated on ISA funds are not subject to income tax or capital gains tax, and that premium bonds are not taxable. However, you can see from above that there are various other tax efficient investments available to you.

What reliefs are available?

  1. Up to £1,000,000 per annum invested in an EIS will give you tax relief at 30%. Meaning if you invest in an EIS you can deduct up to £300,000, depending on your tax liability and size of investment from your tax bill. For knowledge intensive companies this limit increases to £2,000,000.
  2. SEIS investments receive 50% income tax relief on investments up to £100,000 per annum.
  3. SITR is again for annual investments up to £1,000,000 with 30% income tax relief.
  4. VCT investments receive relief on the first £200,000 per annum invested at 30%.

Along with these great income tax savings, subject to certain conditions being met any gains realised on the disposal of shares in these investments (and additionally loans made to SITR qualifying companies) may be exempt from capital gains tax!

Please note this is from a tax perspective only and separate advice should always be sought from an independent financial advisor on your investment needs.

Alex Dent, Tax Manager, Carlisle Office