Where To Invest If You Have Maxed Out Your Pension

Around this time of year a lot of serious investors realise that they have maxed out their pension and ISA tax allowances.

With three-quarters of the financial year gone, where can they put any overflow money to gain the best tax advantage?

Like any financial decision, the answer depends on risk, how much access is needed to the cash and how long the money should stay tied up.

After pensions and ISAs, one of the best tax breaks is the Seed Enterprise Investment Scheme or SEIS.

The risk comes as the companies seeking investment – they are all start ups with no trading history.

Risks and reward

The statistics on start-ups surviving the course are poor as few will be around after five years of trading and most won’t last that long.

But the higher the risk, the greater the reward for some investors.

Investors can stake money in SEIS in several ways – directly to a company, through a fund or as a portfolio service.

Initial income tax relief is a generous 50p in the Pound on investments of up to a maximum £100,000 in a tax year – but the relief is against a tax liability and not carried forward to future years.

Shares in the start-up must be held for three years to qualify for tax relief.

Other tax benefits include no capital gains tax on disposing of SEIS shares, up to 27.5p in the Pound loss relief for additional rate taxpayers (45%) and inheritance tax relief.

No impact on ISAs or pensions

SEIS is the smaller cousin of the long-standing Enterprise Investment Scheme, which offers similar tax breaks on different terms – 30% initial income tax relief on investments up to £1 million and the same capital gains tax, loss relief and inheritance tax advantages.

EIS companies tend to be past the start-up stage and looking for funds to expand, so they may have at least the start of a trading history.

Social Investment Tax Relief like EIS relief – 30% income tax relief on investments up to £1 million.

However, SITR can be structured as loan or equity deals, unlike SEIS and EIS, which are only equity stakes.

Investing in SEIS, EIS or SITR has no impact on ISA or pension lifetime allowances.

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