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.

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.

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.

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.

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.

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.