Tax efficient investments for the UK investor - what is the current state of play of tax efficient investments?
We don't need to discuss ISAS, pensions or VCT's as tax efficient investments here, these are well known, well documented and there is wealth of information for those investors who need additional information.
One of the most attractive and tax efficient investments available in the UK today is the EIS, or Enterprise Investment Scheme.
The tax reliefs available on an EIS are more generous than those on a VCT. EIS invest in very small, start-up companies, so they are also potentially higher risk. The tax relief on an initial investment into an EIS is also 30 per cent but investors can put in between £500 and £1 million, potentially using up their entire income tax liability for 12 months.
There is also the potential to defer capital gains made on a separate investment by reinvesting them into an EIS. The reinvestment has of course to meet certain criteria - disposal of the original asset has to be less than 12 months before the EIS investment or less than 36 months after it.
In this way, gains can be deferred until a tax year in which you are not using your CGT allowance, or have retired and are paying lower tax rates anyway. A tax efficient investment? Certainly appears so.
For the EIS investment itself, no CGT is payable if you sell the shares after three years, provided the EIS initial income tax relief was given and not withdrawn on those shares. Any losses on EIS shares can be set against your capital gains or income tax liability in the year of disposal.