Reduce your tax bill with these investments

Pensions

Admittedly, not the most “fun” of your options. But it works.

Pension contributions up to the annual allowance of £40,000 can be made with tax relief at your highest tax rate. Employers will often automatically provide the maximum relief available to you. In some cases, you may need to claim it through your tax return.

A private pension, or Self-Invested Personal Pension (SIPP), are for pensions outside of employment. But it works in the same way.

Your pension will also grow income and free of Capital Gains Tax, like an ISA.

The tax relief means that if you were to put in £1,000 into a pension, this would actually only cost:

• £800 for a 20% rate taxpayer
• £600 for a 40% rate taxpayer
• £550 for a 45% rate taxpayer

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Venture Capital Schemes

This option is certainly more risky. But it is an opportunity to support early stage businesses.

Many startups are eligible for the schemes we talk about here. (Get in touch if you want to invest in Taxd! ????)

These schemes offer varying rates of income tax relief. These can reduce the income tax you pay. And this can also be carried back to the previous tax year. Also, there is no Capital Gains Tax if shares are sold for a gain, as long as the investment is held for at least 3 years.

However, as these are for early stage companies, they represents a high level of risk and money is usually “tied up” within the company until a liquidity event happens. That is until the business goes through an acquisition, merger, initial public offering (IPO), or other action that allows founders and early investors in a company to cash out some or all of their ownership shares.

The UK has a large investor network that backs small businesses. And these tax incentives certainly help!

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Seed Enterprise Investment Scheme (SEIS)

• Offers a 50% tax relief. So a £20,000 investment would see a £10,000 tax relief.
• The maximum amount you can invest is £100,000 per year. This gives you a maximum relief of £50,000.

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Enterprise Investment Scheme (EIS)

• Offers a 30% tax relief. So a £20,000 investment would see a £6,000 tax relief.
• The maximum amount you can invest is £1,000,000 per year. This gives you a maximum relief of £300,000.

Note that for SEIS and EIS there is no inheritance tax if the investment is made 2 years before the investor’s death.

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Venture Capital Trust (VCT)

• A VCT is a fund that invests in multiple startups. It has a slightly different structure compared to EIS and SEIS.
• Offers a 30% tax relief. So a £20,000 investment would see a £6,000 tax credit.
• Income tax relief also applies to dividends, if received from the VCT.
• VCT shares need to be held for at least 5 years. Two years longer than the 3 years of SEIS, for income tax relief.
• The maximum amount you can invest is £200,000 per year. This gives you a maximum relief of £60,000.

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Social Investment Tax Relief (SITR)

Similar to the above, the Social Investment Tax Relief (SITR) was set up to support social enterprises raise funding from UK investors.

• Offers a 30% tax relief. So a £20,000 investment would see a £6,000 tax relief.
• The maximum amount you can invest is £1,000,000 per yea. This gives you a maximum relief of £300,000.

All of the above can be claimed through your personal tax return. Get in touch with us to see how we can help!