Investors looking for tax breaks lost when the pension lifetime allowance drops may find a safe haven for their cash in the Seed Enterprise Investment Scheme (SEIS).
From April 6, the lifetime allowance for pension funds falls from £1.5 million to £1.25 million, which the government expects to affect around 300,000 investors.
While pensions no longer become an option for tax relief on their cash, SEIS and other tax saving investment schemes like the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) could boom in popularity as an alternative option, writes specialist investment web site seis.co.uk.
Many companies are expected to pitch to wealthy investors in the new tax year – especially universities looking to finance spin-out projects.
High risks but big rewards
“SEIS could become the new ISA, as the £100,000 a year investment cap promises a 50% tax reduction, capital gains tax reliefs on raising the investment and exiting the investment. And if things go wrong, loss relief wipes out much of the risk by setting off losses against other income,” explains the site.
EIS and VCT both offer tax breaks for investors, but not on the same scale as SEIS.
According to the website, “EIS investors can pick up 30% tax relief and capital gains tax boosts. But although the SEIS investment limits are lower, the potential tax breaks are immense.
“Another benefit is SEIS and EIS investments are not pension-based, so do not affect the lifetime allowance calculations.”
“However, SEIS and EIS are not for everyone as they sit at the high risk/high reward end of the investment market.”
Budget 2014 SEIS expectation
If the attraction of big gains tempered with the high fail rate of start-up businesses is something an investor can live with, SEIS and EIS are definitely worth a punt after a saver has used up the lifetime allowance and annual ISA limits.
Seis.co.uk continues to say, “Investments can be direct arrangements with a company or by pooling cash in one of several SEIS and EIS investment funds that take on managing investments and carrying out due diligence for them.”
Investors are hoping that Chancellor George Osborne will extend tax reliefs for SEIS in Budget 2014 on March 19.
If he does, the likelihood is capital gains tax relief on realising assets to switch into cash for buying a SEIS equity stake will continue into the next tax year.
