Tax Efficient Investment Ideas

Last week we had a look at Alternative Investment Market (AIM) ISA investments with an eye on how to incorporate it into your estate planning.

As promised, we will look at another option this week.

This time we address 3 of the most common tax issues we come across, namely Income Tax, Capital Gains Tax and Inheritance Tax.

Enterprise Investment Schemes (EIS) are something we are discussing more and frequently with our clients.

Again this is not for everyone and we would require to carry out an in depth analysis of your circumstances before recommending it.

Much like the AIM investments we looked at last week, these are investments in smaller companies, which benefit from Business Property Relief.

Unlike the AIM investment however these will quite often be illiquid investments meaning there is a minimum holding period of 3-4 years before you can access your funds.

On the surface this may not sound very attractive but perhaps if I highlight the benefits you will see why it is:

• 30% income tax relief on investments up to £1m p.a if held for minimum of 3 years (carry back up to 1 year)

• Inheritance Tax exemption under Business Property Relief rules after 2 years

• Capital Gains Tax deferral on up to £1m p.a (carry back up to 3 years)

With all these tax reliefs available you might wonder what’s the catch, or why is this available?

These reliefs are available to encourage investment into grass roots companies and projects that contribute to the growth in the economy.

According to research carried out by the Centre for Economics and Business Research companies, which represent just 1% of the UK economy contributed to 36% of the UKs economic growth.

Without the tax reliefs a lot of the investments in these business would be deemed too risky and therefore wouldn’t happen.

We see a lot of interest in investing in renewables projects, which are crucial to help meet emissions targets.

These investments are relatively low risk with predictable income, but the growth potential on its own would not be enough to attract investors.

I must stress again that this type of investment is not for everyone, but for high earners/high net worth individuals who have maximised their pension allowances and those looking to extract profit from or sell their business they are vey useful vehicles.

There is a whole range of interesting planning options around these reliefs and we are delighted to chat them through so contact us by any of the usual methods if you would like to know more.