Your phone messages or emails are often bombarded with advertisements urging you to save tax with tax saving investments. As the advertising catches your attention, the thirst of saving tax may land you in a wrong choice of tax saving investment.
Tax saving investment cannot just help in saving tax but also meet your financial goals such as retirement plan, child’s education etc. So the question is how to ensure that your tax saving investment can do much more than to save tax:
This is the most widely recognized investment. It was introduced in 1999, and benefits from a number of reliefs. You can invest upto £20,000 a year without having to pay taxes on your investment.
The main four ISAs are:
You can invest money in each ISA every tax year. The capital that is invested in ISA can grow in a tax free way. An ISA cannot be opened on somebody else’s behalf. You need not pay tax on interest on cash in ISA and on income capital gains from investments in an ISA
EIS is one of the Venture Capital Scheme. It offers tax relief to individual investors who buy new shares in your company. You can raise upto £5 million each year and a maximum of £12 million in your company’s lifetime. Under EIS, you can claim back up to 30% of the value of your investment in the form of income tax relief. You can also claim relief when the business is not profitable.
Pensions Contributions are the most tax efficient way of investment. It is tax free up to certain limits. The tax is paid when you take some money out of your pension. The tax relief on pension contributions is £40,000 or 100% if the income is lower. You get tax relief if your employers takes workplace pension out of your pay before deducting Income Tax. If your rate of Income is 20% your pension provider will claim it as tax relief and add it to your pension pot.
Venture Capital Trusts was launched in 1994. VCTs is a tax efficient designed to provide venture capital for small expanding companies. The relief on VCTs is income tax relief at the rate of 30% on the amount subscribed for the shares. Venture Capital is publicly listed in the UK. You don’t have to pay any capital Gains from investments under Venture capital trust.
SEIS offers great tax benefits for investors. It was designed to boost the UK economy to promote entrepreneurship. Here, investors can save up to 50% tax relief in the tax year when the investment was made up to £100,000 and Capital Gains Tax (CGT) exemption for any gains on the SEIS shares. SEIS tax relief applies only to recently incorporated companies or the company must have 25 or less employees and gross assets of up to £200,000
There are various ways to invest money for tax efficient objective. From a vast investment options, investors can choose based on their preferences and priorities. Tax saving investment cannot just help saving tax but also meet your financial goals.