Tax Efficient Investments
There are various, HMRC approved, investment wrappers that offer people who invest in them generous tax reliefs. These are all designed to help reduce the risk of investors investing in unlisted start-up and expanding companies while providing investment for private companies that require it.
The unique things about these reliefs are that that offer tax relief against ‘income tax’ as well as capital gains tax. This is a genuinely unique feature as the only other income tax relief wrapper is a pension where the funds are tied up until age 55.
Once HMRC has approved a company as a qualifying company, investors purchase shares in the business, and the cost of the investment dictates the amount of tax relief that can be claimed.
For example, if you invest in a qualifying EIS company of £50,000, you could claim back £15,000 from your income tax either paid or payable in that year. (note you can’t claim back more than you have paid in any tax year)
You can also defer any capital gains tax paid in either the year the investment was made or three tax years prior.
For example, after investing the previous example, you also had made a capital gain of £20,000 in the same tax year you could reinvest the £20,000 into the new investment and defer paying the capital gains tax due until the new investment is sold in the future.
There are three main types of tax-efficient investment:
There is a place in a portfolio for all of these types of tax-efficient investment. However, the balance needs to be managed carefully as most of these types of investment are illiquid.
We have access to some of the UK’s leading providers and can advise you on the types of tax-efficient investment that might best suit your needs.
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