Tax efficient savings and investments

Tax efficient savings and investments

Individual Savings Accounts (ISAs): what’s new?

ISAs are an increasingly popular investment, free of tax for both income and CGT. Investment must be made by 5 April 2018 to take advantage of limits available for 2017/18. The maximum you can save is £20,000 in 2017/18. The limit also applies for 2018/19. For Junior ISAs, the limit for 2017/18 is £4,128.

A new product from 6 April 2017 is the Lifetime ISA for 18-39 year-olds. It can be used to save for a first home, or for retirement, and there’s a government top-up of 25% on your savings, up to £1,000 a year.

Other investments attracting tax relief

A Venture Capital Trust (VCT) invests in shares of unquoted trading companies, and an investor will be exempt from tax on dividends and on any capital gains arising from disposal of the shares. Income tax relief at 30% can be available on subscriptions for VCT shares, subject to certain conditions.

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) allow income tax relief on new equity investment in qualifying unquoted trading companies. There have been high profile cases where claims have failed because of easily-avoided errors. Making an EIS claim where an SEIS claim should have been made, for example, can make SEIS unavailable. We are happy to advise on the rules.

Autumn Budget 2017 brought higher limits to encourage investment in knowledge-intensive companies via EIS and VCTs. These are generally effective from 6 April 2018. It also brought some tightening of the rules, such as the ‘risk to capital condition’ for VCTs, EIS and SEIS. This is intended to focus investment on smaller, higher risk companies. With reliefs like these, a lot can be at stake. Please do contact us for professional advice.

Savings income: get it tax free

Savings income is income such as bank and building society interest. You can earn a certain amount of savings income tax free, thanks to the Savings Allowance (SA). For 2017/18, the SA is up to £1,000 for basic rate taxpayers, and up to £500 for higher rate taxpayers. Additional rate taxpayers do not have a SA.

SAs are in addition to the 0% starting rate of tax for savings income, which can apply for up to £5,000 of savings. However, the rate is not available if taxable non-savings income (broadly, earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000. Most people will not pay tax on their savings income, but if tax is payable, HMRC will look to collect any tax they think is due via PAYE tax codes where possible.

Tip

HMRC are just starting to use previous year’s savings interest data from banks and building societies for coding notices. It is always necessary to check tax codes, and all the more so, if the interest you will receive in the coming year is likely to be materially different.

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