The countdown has begun. It is not long until 5th April 2020, the end of another tax year.
Martin Crawley-Boevey, who heads up our Financial Planning team, set out some tax planning tips last week in his “End of year tax planning” brochure. We would like to take this opportunity to explore some of the options, one of which is the use of your capital gains tax free allowance. Every tax payer is entitled to £12,000* of tax free capital gains. As Martin mentioned in his “End of year tax planning” brochure, it’s a case of use or lose it.
For those of you who hold a share portfolio, it may be a good opportunity to review your share portfolio and crystalise some of the capital gains. Any capital gains may be offset against any unused capital gains tax free allowance before the end of the tax year.
For those investors, who have an appetite for more risk and like to invest into smaller, higher-risk trading companies, there are more attractive income tax and capital gains tax reliefs available.
One option is through an Enterprise Investment Scheme (EIS). An individual tax payer can claim income tax relief for up to 30% of the total sums invested with an annual limit of £1m. The potential income tax deduction in their total tax bill is £300,000.
Conditions are attached, including the tax payer must have held the shares for at least three years. Normally there is no capital gain tax (CGT) on the sale of the EIS shares provided income tax relief was provided in respect of those EIS shares.
The other option is to consider investing in smaller start-up companies requiring seed capital. Seed Enterprise Investment Scheme (SEIS) is similar to EIS. The income tax deduction is at the rate of 50% instead of 30% of the investment. This is to reflect the higher risk. The tax payer can obtain a potential income tax deduction in their tax bill of £50,000 subject to a maximum investment of £100,000.
The third option is VCT (Venture Capital Trust) funding, which is generally a listed vehicle accepting money to invest into small unlisted companies and start-ups. The tax payer can claim income tax relief at the rate of 30% of a maximum annual investment of £200,000.
For those companies who are looking to raise finance to boost future growth and wish to use SEIS or EIS for their fundraising, the company must be a qualifying company in terms of size and not have exceeded the maximum age for the company.
If you wish to discuss this further on how to implement these schemes for your company or how to claim the tax relief in your tax return, please contact our tax specialist at PK Group and our PK Wealth management team to discuss any tax planning opportunities for you.