3 tax efficient investments for business owners this year end

While we prefer to focus on financial planning and long term goals, you have probably just completed your tax return and sent a large cheque to HMRC, the tax year end is looming and you are wondering if there is anything you can do.

Thankfully there is! We have detailed 3 methods to to help you address some of your tax issues while making good investment decisions.

There are changes coming to the rules for each of the methods below which mean that this tax year is likely to be the most advantageous.

Each of these will come into even sharper focus from April 2016 with the changes to dividend taxation.

Pensions

Pensions have been the go to vehicle for tax relief in recent years offering the most generous regime. This has been eroded in recent budget with the introduction of the annual and lifetime allowances, and will be further reduced by tapering down of the annual allowance for those earning over £150,000 p.a

Employer contributions are still a good way of getting some relief on corporation tax as this is treated as a trading receipt.

The recent changes to legislation around pension freedoms mean they remain an attractive option.

This year is the final year for high earners to benefit from the full annual allowance and tax reliefs before the changes due to be implemented in April.

Venture Capital Trusts (VCTs)

The Government introduced the Venture Capital Trust Scheme on 6th April 1995 to encourage people to invest in smaller companies whose shares and securities are not listed on the main stock exchange with the aim of making capital returns, VCTs are themselves listed companies and are run by a fund manager.

There are very strict rules on how VCTs can invest the pooled funds which in turn provide a number of tax advantages for the investor.

You can invest to £200,000 p.a into VCTs and receive 30% relief on your investment with a minimum holding period of 5 years.

The VCT can also pay out tax-free dividends so regular investment can be a great tool for generating long term tax efficient income.

VCTs come in all shapes and sizes depending on your appetite for risk, however with careful selection these can be great tax planning and investment vehicles.

Enterprise Investment Schemes (EIS)

The Government introduced Enterprise Investment Schemes (EIS) in 1994 to encourage people to invest in smaller companies. They are designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

The benefits of EIS investment are 30% relief on investments of up to £1m p.a. with tax free growth, and they also qualify for Business Property Relief (BPR) so are Inheritance Tax (IHT) friendly.

Your 30% tax relief can also be carried back to the previous tax year with an EIS which is not available with a VCT.

The other main benefit as well as access to different types of investment risk is that you can also roll over any Capital Gains (CGT) into the EIS, but it should be noted this is a deferral not a relief.

Summary

Please note we only consider tax relief that is “hard wired” into legislation.

If you would like to know more we are having a Breakfast Seminar on 11th February at 9am.

Click the link above for more info.

This is not intended as advice and should not be treated as much. Please speak to an independent financial adviser before making any investment decisions.