Generous tax reliefs are available through the use of individual savings accounts more commonly known as ISAs and through investment in private companies.
There are very few ways of minimizing tax liabilities these days, but ISAs and investment in Enterprise Investment Scheme shares (EIS), Seed Enterprise Investment Scheme shares (SEIS) and Venture Capital Trusts (VCTs) can offer generous income tax and capital gains tax reliefs.
ISAs remain a key method for UK resident individuals to save tax efficiently. Whether through a cash ISA, a stocks and shares ISA, a junior ISA for sixteen and seventeen year olds, or the help to buy ISA for first-time buyers.
The lifetime ISA allows 18-40 year olds to save tax efficiently for a home or retirement with, a 25 per cent government contribution worth up to £1,000 per year. The limits for investments in ISAs are much more generous these days and you can save up to £20,000 in ISAs each tax year. Income and capital gains arising in ISAs are tax free and you don’t need to declare the income or capital gains on your tax return.
For EIS and VCTs income tax relief at 30 per cent is available and for SEIS the income tax relief is at 50 per cent. There are limits on how much you can invest in each of these each year. EIS and SEIS shares can be free of capital gains tax on disposal and EIS investments can be used to defer capital gains arising on other assets. Reinvestments of capital gains arising on other assets disposed of in the same tax year into SEIS shares can benefit from partial capital gains tax exemption.
I think most people could understand that if you invest say £100,000 into an EIS qualifying company, the income tax relief at 30 per cent would give you a £30,000 reduction in your tax liability for the year of investment or in some circumstances the previous tax year. However, you do need to make sure you’ve got sufficient tax liability to utilise the relief in full, taking into account any other reliefs and deductions you may have.
RSM can help identify the tax implications of the various investment options and help you navigate the tax reliefs available. EIS, SEIS and VCTs do carry an element of risk, and even ISAs may need to be approached with caution, particularly if you’re a US citizen, because the US and indeed other overseas countries, will not necessarily recognise that these are tax free.