Cash hungry companies seeking cash from private investors offer a tax haven to wealthy investors who have maxed out their pensions.
Retirement savers paying additional rate income tax (45%) have seen their lifetime pension allowances slashed to £1 million and the amount of money they can put into their pots fall to as low as £10,000.
An investment alternative is the generous tax breaks offered by new start or growing businesses.
Four schemes managed by HM Revenue and Customs (HMRC) are available:
Seed Enterprise Investment Scheme (SEIS) – Invest up to £100,000 a tax year into a start-up for a 50% reduction on income tax paid up to a maximum £50,000 providing the shares are held for three years
Other incentives include no capital gains tax on investment growth and loss relief if the start-up should fail.
Enterprise Investment Scheme (EIS) – Runs along similar lines to SEIS in a fledgling business, but the investment limit is £1 million and income tax relief is offered at 30% of the amount invested. CGT and loss relief is on the same terms as SEIS.
Venture Capital Trusts (VCT) – Invest up to £200,000 in a qualifying company with a 30% income tax rebate providing the shares are held for five years. No CGT on share disposal and no higher rate tax on dividends paid
Social Investment Tax Relief (SITR) – For investors supporting community projects or social enterprises. Income tax rebates are offered at 30% on investments of up to £1 million. The money also attracts capital gains tax reliefs providing the investment is held for at least three years
Each tax incentive scheme comes with a detailed list of qualifying rules for companies, investors and the type of businesses or community projects that are covered by each.
Many are coupled with crowdfunding bids to offer tax incentives to equity investors.
SITR has a broader investment base and can include debt funding as well as equity.
For higher rate taxpayers, the benefit of each scheme is they offer tax relief that matches a pension, but without the lifetime allowance and low contribution limits attached to pensions.
The investment period for each are aligned with the financial year starting April 6.
