There are certain tax efficient investments that are available should you wish to invest your personal savings. Due to their complexity we consider Individual Savings Accounts (ISAs) and Tax Relief on Pensions separately.
This information provides general tax advice only and should not be used in isolation. You should always seek investment advice from qualified individuals before entering into any investment options.
National Savings & Investments are considered to be a “safe” way of saving and investing money because the Treasury backs it. Tax-free savings and investment products from National Savings & Investments currently include:
National Savings & Investments also issue Premium Bonds. If you buy Premium Bonds, you won't earn interest, but you can win tax-free prizes.
There are potential tax advantages for individuals who invest in shares in a qualifying company. These are generally new companies seeking finance and may be viewed as high-risk investments. There are however, investments that minimise the risk.
You will be entitled to Income Tax relief that takes the form of a reduction in your income tax liability. The reduction is equal to 30% on the amount of the subscription. The relief can only reduce the liability to £nil and cannot generate a tax repayment.
You may not have to pay capital gains tax on any gain you make when you dispose of the EIS shares. You are also able to defer Capital Gains Tax on disposals made in the three years prior to or the 12 months following the date you acquired the EIS shares.
In addition, the value of the shares you hold in an EIS company will be outside of your estate and not subject to Inheritance Tax once you have held them for 2 years or more.
The maximum you are able to invest into an EIS company and receive Income Tax relief and capital gains tax exemption on in the 2018/2019 tax-year is £2,000,000. For 2018/19, amounts over £1,000,000 must be invested in ‘knowledge-intensive’ companies. There is no maximum subscription amount to defer Capital Gains Tax.
The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. It complements the existing Enterprise Investment Scheme (EIS) which offers tax reliefs to investors in higher-risk small companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate.
You will be entitled to Income Tax relief that takes the form of a reduction in your income tax liability. The reduction is equal to 50% on the amount of the subscription. The relief can only reduce the liability to £nil and cannot generate a tax repayment.
You may not have to pay capital gains tax on any gain you make when you dispose of the SEIS shares- as long as you have held them for three years. You are also able to defer Capital Gains Tax on other assets by reinvesting the gain in SEIS shares.
In addition, the value of the shares you hold in an EIS company will be outside of your estate and not subject to Inheritance Tax once you have held them for 2 years or more.
The maximum you are able to invest into an SEIS company and receive Income Tax relief and capital gains tax exemption on in the 2018/2019 tax-year is £100,000. There is no maximum subscription amount to defer Capital Gains Tax.
Non-qualifying life insurance policies (often referred to as single premium investment bonds) provide a tax-free wrapper for higher rate taxpayers to enable an investment to grow free of Higher Rate Tax until such time as it matures or is encashed.
You are able to take out up to 5% of the investment each year without incurring a tax charge. Any withdrawals in excess of the 5% limit will be taxable but only if you are a Higher Rate Tax payer in the year in which the “gain” is made. The 5% limit is cumulative so you can, for example, draw 25% of the fund after 5 years of not making withdrawals.
Tax will arise on the encashment of the bond, but only to the extent that you are a Higher Rate Tax payer during the year in which the bond is encashed.
You can therefore make tax savings by planning the date of encashment or maturity to a tax year in which you are not a Higher Rate Tax payer.
From 2015/16, interest paid to individuals will be paid gross. If you’re a basic rate taxpayer, you’ll be able to earn up to £1,000 in savings income tax-free. Higher rate taxpayers will be able to earn up to £500. This is called the Personal Savings Allowance.
This means:
If you already receive interest without tax being taken off, you’ll no longer need to tell your bank or building society that you qualify for tax-free interest.
