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 an income tax and capital gains tax free form of investment. The maximum investment limits are set for each tax year, therefore to take advantage of the limits available for 2015/16 the investment(s) must be made by 5 April 2016. An individual aged 18 or over may invest in one cash and one stocks and shares ISA per tax year. The overall total investment is £15,240.
The new Help to Buy ISA offers incentives for those saving for their first home. Available since 1 December 2015, the account enables first-time buyers to save monthly deposits of up to £200, with an opportunity to deposit an additional £1,000 when the account is first opened. The government will then provide a 25% bonus on the total amount invested, including interest, capped at a maximum of £3,000 on savings of £12,000, which is tax free. The bonus can only be put towards a first home located in the UK with a purchase price of £250,000 or less or up to £450,000 in London.
Other investments with tax reliefs
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.
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.