Four ways to slash your tax bills with investments

Lisa Smith, BA (Hons), CeFA
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Taxpayers looking for ways to reduce their income tax or capital gains tax bills can look at putting cash into one or more of five government backed investment schemes.

Chancellor George Osborne is keen to offer investors in business and social enterprises tax breaks to make up the shortfall in money available to entrepreneurs and community projects from government cuts.

The four main tax breaks are:

Seed Enterprise Investment Scheme (SEIS)

Invest up to £100,000 in a start-up business by taking an equity stake for three years gives:

  • A 50% reduction on income tax paid in the year of investment up to a maximum £50,000 – carry back options are also available for a previous tax year
  • A 50% exemption on capital gains tax (CGT)on the sale of assets raised to invest in a SEIS
  • Any growth on a SEIS investment is free of CGT
  • Loss relief against other income is available if a SEIS company fails
  • 100% business property relief against inheritance tax (IHT)

Find out more about SEIS on the HMRC web site

Enterprise Investment Scheme (EIS)

Invest from £1 million in an expanding business by taking an equity stake for three years gives:

  • A 30% reduction on income tax paid in the year of investment up to a maximum £300,000 – carry back options are also available for a previous tax year
  • CGT deferral relief on any asset sold
  • Loss relief against other income is available if a EIS company fails
  • 100% business property relief against inheritance tax (IHT)

Find out more about EIS on the HMRC web site

Venture Capital Trusts (VCT)

Business angel investments in start-ups and growing businesses offer:

  • A 30% reduction on income tax paid in the year of investment up to a maximum £200,000
  • Any growth on a VCT investment is free of CGT

Find out more about VCTs on the HMRC web site

Community Investment Tax Relief (CITR)

Backing community projects with social investments over five years gives:

  • 25% income tax relief on the value of the investment spread over five years with no limit on the investment amount

Find out more about CITR on the HMRC web site

Can investors pick and mix schemes?

Yes. Careful tax planning can significantly mitigate income tax and capital gains tax liabilities.

Do investments have to be made direct to companies?

No. Many investment houses run special funds for these tax saving schemes that spreads the risk over a number of companies. Investing through a fund still offers the same tax breaks.

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