Are you making the most of your available tax reliefs?
In our recent survey, most Wealth Club members (60%) said they think taxes will go up irrespective of who wins the coming election. Hardly anyone (2.6%) expects no tax-rise at all, and the vast majority (84%) expect their tax burden will be higher in the coming year.
Do you foresee a rising tax burden? It may be worth seeing how to make the most of the annual tax-efficient allowances and reliefs still available to you – particularly whilst they remain as generous as they are.
Here are five ideas to consider.
Tax rules can change, and benefits depend on circumstances. This is a brief outline based on current rules: there are detailed conditions and rules you should consider carefully before investing. Decisions should be based on the investment merit, not the tax reliefs alone.
Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice. These investments are for the long term. They are high risk and can fall as well as rise in value: you could lose all the money you invest.
Five ideas to consider:
- Invest up to £200k p.a. in a VCT – up to 30% income tax relief, plus tax-free dividends
- Invest up to £2 million p.a. in EIS – save up to 30% income tax this tax year or the last, plus defer capital gains made elsewhere
- Invest up to £200k p.a. in SEIS – save up to 50% income tax and capital gains tax, this or last tax year
- Make the most of your ISA and SIPP (Self Invested Personal Pension) allowances – see two ready-made options, managed for you by our investment experts
- Invest in an AIM IHT ISA – potentially IHT-free after two years
Tax rules can change and benefits depend on circumstances.
1. Invest in a VCT – up to 30% income tax relief and tax-free dividends
When you invest in a VCT, you may claim up to 30% income tax relief for the tax year for which you make the investment. So, for instance, a £10,000 investment could save you £3,000 on the year’s income tax bill.
You can claim back tax you’ve already paid over the year. Alternatively, you could ask HMRC to have your subsequent income tax reduced each month under PAYE.
Any dividends paid out from VCTs are tax-free – so won't use up your dividend allowance, which is currently only £500 a year – and any growth is also tax-free. Please note, VCT dividends are variable and not guaranteed.
You can invest up to £200,000 per tax year. The minimum holding period to retain VCT tax relief is five years.
2. Invest in EIS – save up to 30% income tax this tax year or the last, plus defer capital gains made elsewhere
When you invest in EIS, you can offset up to 30% tax relief against your current year’s income tax bill – or the previous year’s if you use “carry back” (explained below); a £10,000 investment could save you £3,000.
You may also defer the tax on capital gains made elsewhere, for as long as that gain is invested in an EIS-qualifying investment. Furthermore, any growth to your EIS investment will be tax-free. To benefit from these CGT-related reliefs, you must also have had the income tax relief in the same year.
Your investment should be IHT-free after two years, and should things not go to plan you can use loss relief.
You can invest up to £2,000,000 per tax year (provided anything beyond the first £1,000,000 is invested in Knowledge Intensive companies). The minimum holding period to retain EIS tax relief is three years. Tax rules can change and benefits depend on circumstances.
What is EIS/SEIS carry back?
EIS and SEIS investments offer a “carry back” facility. This gives investors the option to offset the tax relief against income tax from the previous tax year, instead of the investment tax year. Potentially, this means you could be able to apply the relief to your 2024/25 or your 2023/24 income tax bill, if you invest today and you investment is deployed within this tax year.
3. Invest in SEIS – save up to 50% income tax and capital gains tax
The most generous tax reliefs are reserved for investing in the youngest and therefore highest-risk companies, under SEIS. This includes up to 50% income tax relief, with the option to carry back to the previous year; a £10,000 investment could save you £5,000 on your income tax bill.
You could also reduce the CGT on gains made elsewhere, by up to 50% your investment amount. Furthermore, any growth in the value of your SEIS investment will be tax-free. To benefit from these CGT-related reliefs, you must also have had the income tax relief in the same year.
The investment should be IHT-free after two years, and you could claim loss relief if things don’t go to plan. Bear in mind tax rules can change and benefits depend on circumstances.
You can invest up to £200,000 per tax year. The minimum holding period to retain SEIS tax relief is three years.
4. Make more of your ISA and SIPP allowances – with our Managed Portfolios, exclusive to Wealth Club
You can now invest your ISA or SIPP in long-term growth opportunities selected and managed for you: our Quality Shares Portfolio and Wealth Club Portfolio Service.
You can invest new money or transfer existing investments. Note: these discretionary managed portfolios are long-term investments which can fall as well as rise in value and returns are not guaranteed. Pensions are long-term investments: you cannot normally access your funds before age 55 (57 from 2028). Before making any contributions you should check you are eligible.
Quality Shares Portfolio
The Quality Shares Portfolio is managed by Charlie Huggins, who before joining Wealth Club as Head of Equities ran the £300+ million HL Select UK Growth Shares fund at Hargreaves Lansdown.
The portfolio comprises 15-20 global listed companies Charlie has observed for a long time, invests his own money in, and has chosen for their resilience, financial strength and long-term growth potential. Please bear in mind this is a concentrated portfolio of equities, hence high risk.
In Charlie’s own words: “When you invest, I tell you what I am doing with your money and why. I offer my unvarnished views on companies and markets. I share investment ideas and principles that you can apply to the rest of your portfolio. No other investment service offers this.”
Wealth Club Portfolio Service
The Wealth Club Portfolio Service provides investors with well-diversified, institutional-grade portfolios (the type a private bank or wealth manager might build for you), but without the hefty price tag.
We are not aware of any similar service that can match it.
Each portfolio is a diverse mix of 30–45 actively managed and low-cost index funds as well as investment trusts. They give you exposure to equities and bonds from around the world, but also infrastructure and other private assets.
You can choose from five portfolios – Conservative, Balanced, Growth, Adventurous Growth and Income – based on the level of risk you are comfortable with. We do the rest: make the investment decisions and regularly rebalance the portfolio.
5. Invest in an AIM IHT ISA – your investment could potentially be IHT-free after two years
ISAs are not normally IHT free. However, when you invest in an AIM IHT ISA, your money could potentially be IHT-free after two years, provided you still hold the investment on death, in addition to the usual ISA benefits of tax-free income and growth. This is because certain AIM shares are eligible for Business Property Relief. Please note: AIM shares are more illiquid and volatile than those listed on the main market, please ensure you are comfortable with this before investing.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.