Spotlight on VCTs – Part 2 of risky tax relief

May 10, 2013

spotlight

of small, higher-risk trading companies not listed on any stock exchange. Fund managers of VCTs must buy predominantly the shares of unlisted companies and the investment risk is spread over a number of them.

VCTs themselves are listed and can be traded with other investors.

Income tax relief is 30% at present and the annual investment limit is £200,000. This relief is withdrawn if the shares are disposed of within 5 years. However, it may be difficult to dispose of shares even though they are listed, because tax relief is only offered on the subscriptions of new shares, not those bought in the market.

Unlike EISs, VCTs cannot be used for Capital Gains Tax deferral.

Overall, a VCT should be a lower risk investment than an EIS (featured here https://www.oliverassetmgmt.co.uk/spotlight-on-eis-risky-tax-relief/ ) because it is a pooled investment, whereas an EIS is an investment in a single company.

Approach with caution, but, if you are interested in how either VCTs or EISs could work for you please get in touch using the Make An Enquiry tab above.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.

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Spotlight on EISs – Is risky tax relief for you?

April 26, 2013

spotlightAt a time when many in the city may have just received their bonus and will be paying a healthy dose of tax with it, I thought it would be a good time to mention a couple of investment vehicles that come with tax relief.

Tax relief doesn’t come for free of course, and to obtain it you must be prepared to put up with higher levels of risk.

The first of these vehicles to be discussed is Enterprise Investment Schemes (EISs).

EISs are intended to help certain types of small, higher-risk, unquoted trading companies raise capital by providing tax relief for investors. They took over from Business Expansion Schemes in 1994.

Income tax relief on EISs at present is 30% for qualifying investments and the maximum annual amount an individual can contribute at is £1million. Interestingly, income tax relief is given in the year of assessment in which the shares are issued, rather than the year of investment. So as an investor, it might be possible to carry back income tax relief to the previous tax year.

The shares must be held on to for 3 years minimum or the relief will be withdrawn.

Capital gains can also be deferred for tax reasons by investing the gain into an EIS. There are various caveats to this and I would urge you to contact us to find out more if you think this could be useful in your circumstances.

No mention of EISs should come without a big fat risk warning. Investing in unlisted trading companies is a very high risk activity and the possibility of a company failing is very real. There is also a high liquidity risk as, even after the minimum three year period, it may be difficult to dispose of the shares.

Approach with caution, but, if you are interested in how this could work for you please get in touch.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.

Come back in a fortnight for a look at Venture Capital Trusts (VCTs).

Malcolm Stewart

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Working for the Government?

May 18, 2011

I had a friend that years ago had worked out that with his given rate of tax and National Insurance, he was effectively working for the Government until mid afternoon on a Tuesday before he made any money for himself.

Given our current levels of tax, I wonder what he’d make of things now?

He could well be working until late Thursday with top rates of tax being 50%.

We know that reducing the tax burden is one of the 5 key concerns of our clients and that this has never been more acute. I hear from people on a daily basis that they are looking for ways to pay less tax.

Interestingly, they always want to look to the esoteric methods rather than the tried and tested.

So please speak to your adviser and make sure you’re maximising your ISA allowance, pension contributions, CGT annual exemptions, IHT allowances – use a relevant life policy through your limited company if your able and save corporation tax on your life cover premiums.

If you want more, then certainly look at the improved tax breaks Venture Capital Trusts & Enterprise Investment Schemes offer since the last budget (be well aware of the higher levels of risk that might be involved here.)

In short, pay your tax but make sure you take full advantage of the ways you can pay less.

I’ll be discussing the ways you can use financial planning tools to save tax in more detail in the coming weeks.

Call me anytime to discuss this further or any other aspect of your financial planning needs.

Roland Oliver

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