There are various Income Tax Reliefs available for investing in EIS, SEIS and VCTs. Also, don’t forget your Capital Gains Tax annual exemption and Inheritance Tax exemptions.
Enterprise Investment Schemes (EIS)
Income tax relief is available at 30% on investments up to £1,000,000. Any capital gain arising on qualifying shares is exempt. In addition, it is possible to defer the payment of tax on existing capital gains.
There is a ‘carry back’ facility which allows investors up to £500,000 of the cost of the EIS shares to be treated as acquired in an earlier year. Relief is given against that year’s tax liability.
Quick action should be taken if you wish to invest and obtain the necessary EIS3 certificate in time to use carry back for the 2012/13 tax year.
Seed Enterprise Investment Schemes (SEIS)
Income tax relief is available at up to 50% on investments up to £100,000. Any capital gain arising on eventual disposal of shares held for three years is exempt provided they have continued to qualify.
Qualifying investors may also benefit from eliminating a capital gains tax liability arising in 2013/14 or 2012/13 (by carry back) by investing in an SEIS. The relief is available on 50% of the qualifying re-invested amount subject to maximum gains of £100,000.
Quick action should be taken if you wish to invest and obtain the necessary SEIS certificate in time to use carry back for the 2012/13 tax year.
Venture Capital Trusts
Receive income tax relief at 30% on investments up to £200,000. The shares must be held for five years. No income tax is payable on dividends from the ordinary shares.
The ability to transfer the holding into a Self-Invested Personal Pension (SIPP) allows for future tax planning possibilities of generating further tax reliefs.
Capital Gains Exemption
Where possible, realise capital gains to use your annual exemption allowance of £10,900 for 2013/14 (£5,450 for most Trusts). Remember that married couples and civil partners can use two annual exemptions by transferring assets pre-sale.
With the nil rate band having been frozen at £325,000 since 2009/10 and expected to be unchanged until at least 2017/18 it is important to review inheritance tax planning strategies where you are keen to reduce your IHT liability.
If you can afford to make gifts of capital you should seek to use your £3,000 annual exemption before the end of the tax year. Don’t forget if you didn’t use your annual exemption last year you can also use that too enabling you to make a total IHT free gift of £6,000 (or £12,000 for a couple).
There is also the small gifts exemption which is often overlooked, where an individual can give away up to £250 to as many individuals as they wish in any tax year free of IHT. However, it is not possible to use both the £3,000 annual exemption and the £250 annual exemption in respect of gifts to the same individual in the year.
Further exemptions are available also. If you are concerned about your potential Inheritance Tax position, you may wish to get further advice.
- The National minimum wage increased from 1 October 2013.
- Advisory Fuel Rates for Company Cars reduced from 1 December 2013.
- The High Income Child Benefit charge was introduced from 7 January 2013.