Last month we covered the government's plans for the biggest programme of tax rises since the 1970s. With this change, it's best to be prepared if you're looking for investment opportunities.
Here are the tax-efficient investment allowances that you need to know about…
Individual Savings Accounts (ISAs)
Individual Savings Accounts, or ISAs, are an extremely popular investment method. Introduced in 1999, ISA is an umbrella term referring to products that are available to all savers in the UK.
With an ISA you can invest up to £20,000 a year without paying tax on the investments. The main four ISAs are: Cash ISAs; Shares and Stocks ISAs; Lifetime ISAs; and now: Innovative Finance ISAs (IFISA).
Pensions
Pension contributions up to the annual allowance of £40,000, or 100% of your income can be made with tax relief at your prevailing rate of income tax, if you earn below that annual amount. This allowance tapers over £150,000, reducing by £1 for every £2 over the £150,000.
This allows your pension pot to grow in a tax free environment, like ISAs, so once you have paid into a pension scheme this amount can be invested into allowable assets, providing an income or growth without needing to pay tax.
Enterprise Investment Scheme (EIS)
Created in 1994. this Venture Capital Scheme was created as the successor to the Business Expansion Scheme. It is designed to promote investment into unlisted early-stage businesses. So far it has provided a steady stream of capital to businesses that need it the most, with over £16.2 billion of funds raised up to October 2017.
This offers investors the ability to back unlisted businesses, which generally represent higher risk due to their early stage and lack of liquidity. By getting in on ‘the ground floor’ and investing in new business, you are eligible for tax reliefs, including the headline income tax relief of 30% on the value of your investment, and tax exemption on growth achieved. To further the incentive, EIS shares are eligible for loss relief, if your investment doesn't produce a return.
Seed Enterprise Investment Scheme (SEIS)
Similar to EIS, SEIS was launched in 2012. Designed to cater for early businesses seeking investment, this scheme supports the first £150,000 of external equity capital a business raises within its first two years of trading. By October 2017, SEIS had helped 6,665 companies raise over £621 million of investment and offered attractive incentives to investors.
Whilst new businesses are the riskiest, with limited liquidity and a potentially long wait to an exit, SEIS offers 50% income tax relief upfront and reinvestment relief that allows investors to reclaim 50% relief on a reinvested gain. These, along with related capital gains exemption, ensure a potential total exposure as low as 13.5%.
If you have any questions about investing, feel free to get in touch today.