Tax efficient investments
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Individual Savings Accounts
(ISAs)
Venture Capital Trusts
(VCTs)
Enterprise Investment Schemes
(EIS)
Individual Savings Accounts (ISAs)
(Updated 8pm 23 March)
The ISA annual subscription limit for 2010/11 is £10,200, of
which £5,100 can be saved in cash. From 6 April 2011, this limit is
set to increase annually in line with increases in the retail
prices index (RPI). It has also been confirmed that future annual
limits will be rounded to the nearest multiple of 120, thus making
it easier for those individuals who put money away in their ISA on
a monthly basis.
The new limits will be calculated by reference to the RPI for
the September before the start of the tax year. HM Revenue and
Customs (HMRC) will announce the new limits once the relevant RPI
figure has been published. This should be at least four months
before the start of the new tax year in which they will apply. In
the event that RPI is a negative figure, the ISA limits will remain
unchanged.
It is intended that the cash ISA limit will continue to be half
that of the stocks and shares ISA limit. So, for the tax year
2011/12 the subscription limit will be £10,680, of which up to
£5,340 can be saved in cash.
The Government has also announced proposals to introduce a
tax-free children’s savings account. It is intended that the new
accounts, described as ‘Junior ISAs’, will offer parents a simple
and tax free way to save for their child’s future, without the aid
of any specific Government funding.
It has been confirmed, in the 2011 Budget, that these Junior
ISAs will be available for all UK resident children who do not
already have a Child Trust Fund account. Similar to a standard ISA,
Junior ISAs will be available as cash or stocks and shares
investments.
It is understood that these accounts should be widely available
by Autumn 2011 following the release of draft legislation, to be
published on 31 March and a subsequent consultation period in the
spring.
Venture Capital Trusts (VCTs)
(Updated 8pm 23 March)
VCTs are a form of tax efficient investment.
The main benefits include:
- Thirty percent income tax relief (on qualifying investments up
to £200,000 per tax year); provided underlying investments are held
for at least five years
- Tax-free dividends throughout the investment
- Tax-free capital gains (when shares are sold) after five years
(investment risks apply)
In the recent publication of the final reliefs and exemptions
report from the
Office of Tax Simplification (OTS), it was recommended that the
current reliefs available for both VCTs and
enterprise investment schemes (EIS) are currently in need of
simplification. In particular, it stated the need to rewrite the
qualifying conditions for both the investor and the investee
company, in a more simplified form.
Subsequently, it has been announced in the 2011 Budget report
that a consultation period shall follow on the potential
simplification of the EIS rules.
Further legislation will also be introduced, in Finance Bill
2012, that will increase the qualifying company limits for both EIS
and VCT’s, from April 2012, as follows:
- 250 employees
- Gross assets of £15 million
- Increased annual investment limit for qualifying companies to
£10 million
Enterprise Investment Schemes (EIS)
(Updated 8pm 23 March)
EIS investments give the taxpayer an opportunity to invest in an
unconnected company and, subject to certain conditions, attract
potential relief from income tax and capital gains tax at the same
time. Investment risks apply.
At present, the main tax benefits include:
- Twenty percent income tax relief (on investments up to £500,000
per tax year); provided underlying investments are held for at
least three years
- The ability to carry back the tax relief to the previous tax
year
- Hundred percent capital gains tax deferral* for the life of the
investment; provided underlying investments are held for at least
three years
- Tax-free capital gains after three years
- Hundred percent inheritance tax relief after two years (if
investments are held at time of death)
*Following the changes to the capital gains tax rules announced
in the Emergency Budget on 22 June 2010, it is no longer possible
to defer a capital gain under the EIS rules and for it to continue
to qualify for Entrepreneurs’ Relief.
In the recent publication of the final reliefs and exemptions
report from the
Office of Tax Simplification (OTS), it was recommended that the
current reliefs available for both EIS and
venture capital trusts are currently in need of simplification.
In particular, it stated the need to rewrite the qualifying
conditions for both the investor and the investee company, in a
more simplified form, providing further clarity to the regime.
In today’s Budget, the Chancellor George Osborne announced major
changes to the tax reliefs available for investors in EIS.
Legislation, to be introduced in Finance Bill 2011, will increase
the rate of EIS income tax relief to 30 per cent from April 2011.
It has also been announced that, from April 2012, the annual EIS
investment limit will be increased, to £1 million, along with
further increases to the qualifying company limits. The measures
are expected to be included within Finance Bill 2012.
Further consultation will also follow on the simplification of
the EIS rules by removing restrictions on qualifying shares and
types of investor.