Government approved programmes
Pre-qualified companies or investment vehicles
The term ‘tax-efficient investments’ refers to investment opportunities through which investors will receive tax benefits.
More specifically, these types of investment use government approved programmes to give investors tax relief on the investments they make into pre-qualified companies or investment vehicles.
The types of tax relief investors receive in return range from Capital Gains relief through to loss relief and Inheritance Tax relief.
Three investment schemes that have been set up by the UK Government and offer very generous tax breaks:
The Enterprise Investment Scheme (EIS)
This scheme is designed to encourage investment into early-stage companies that are not listed on a stock exchange. It offers investors a range of tax breaks, including Income Tax relief of 30%, no Capital Gains Tax on gains realised on the disposal of EIS investments provided the investments are held for three years, Capital Gains Tax deferrals if proceeds are invested in qualifying EIS investments, and Inheritance Tax relief if the investments are held for two years.
The Seed Enterprise Investment Scheme (SEIS)
This scheme is designed to promote investment into start-up companies that are raising their first £150,000 in external equity capital. Like the EIS, it offers a range of generous tax breaks, including Income Tax relief of 50%, no Capital Gains Tax on gains realised on the disposal of SEIS investments provided the shares are held for three years, reinvestment tax relief, and Inheritance Tax relief if investments are held for two years.
Venture Capital Trusts (VCTs)
VCTs are investment companies that are listed on the London Stock Exchange and invest in smaller companies that meet certain criteria. VCTs offer investors a range of tax breaks including 30% Income Tax relief, tax-free dividends and tax-free growth.
While all of these schemes offer generous tax breaks, it’s important to be aware that due to the high-risk nature of investing in small, early-stage companies, they will not be suitable for everyone. Only those who can afford to take the risk should consider these tax-efficient investment schemes.
Only experienced investors who are comfortable with high levels of risk should consider these schemes.