By understanding which products are the most Tax efficient you can make the most out of your savings and investments

Which investments are right for you, and which are the most tax efficient ways to invest.

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Investments and Tax efficiency

Tax efficiency is essential to maximising returns. Due to the complexities of both investing and U.K. tax laws, many investors don’t understand how to manage their portfolio to minimise their tax burden.

Simply put, tax efficiency is a measure of how much of an investment’s return is left over after taxes are paid.

If you save or invest money, you’ll generally have to pay tax on the interest or income you receive. This guide will look at some possible ways to help reduce the amount of tax you pay, making your investment portfolio more tax efficient.

There are a number of different types of tax efficient investments and investment plans that Iain Longworth Partnership can give you advice on and we can  recommend the most appropriate one’s for you.

Investment advice on…

Individual Saving Account (ISA)

Individual Saving Account (ISA)

Venture Capital Trusts (VCT)

Venture Capital Trusts (VCT)

Enterprise Investment Schemes (EIS)

Enterprise Investment Schemes (EIS)

The Different Types of Investment Bonds

The Different Types of Investment Bonds

The different types of investment vehicle

 What are Individual Savings Accounts (ISA’S)?

These are savings and investment plans which allow you to save a certain amount of money each and income you earn from them is tax free. There are Two types of ISA’S Cash ISA’S and Stocks and Shares ISA’S.

You can put money into one cash ISA and one stocks and shares ISA each tax year. In the 2015 – 2016 Tax year the maximum you can save in ISA’s is £15,240.

Cash ISA’S are a good way of saving in the short term, normally less than 5 years they offer better rates of interest than bank and building society accounts.

What are Venture Capital Trusts (VCT)?

A Venture Capital Trust or VCT is a highly tax efficient UK closed end collective investment scheme.

It is designed to provide private equity capital for small companies and capital gains for investors. VCT’s are a form of publicly traded private equity.

VCT’s are companies that are listed on the London Stock Exchange, which invest in other companies which are not themselves listed. VCT’s were first introduced by the Conservative government in the Finance Act, 1995 which aim was to encourage investment into new UK businesses, they have proved to be much less risky than originally anticipated.

  • Investment mount up to £200,000 per tax year
  • holding period minimum 5 years
  • Pay tax free dividend
  • Capital Gains Tax exempt on disposal
  • 30% income tax reduction of the amount invested

What are Enterprise Investment Schemes (EIS)?

The Enterprise Investment Scheme or (EIS) is a series of UK tax reliefs that were launched in 1994 in order to replace the Business Expansion Scheme.

The Enterprise Investment Scheme is designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom. The rules for qualifying are complicated, some of the qualifying criteria are as follows.

The company must not have assets greater than £15 million and may have no more than 250 full-time equivalent employees. All capital employed must be actively engaged in the company within 24 months and the company must not be in specific industries.
Entry into the scheme is subject to a decision and audit made by an appointed tax officer.

The investor may not have more than a 30% interest in the company, no partner or associate of the investor (including spouse, relations, prior business contacts) may have other interests in the company. The investor must not have any other form of controlling interest in the company

  • Investment amount permitted up to £1million per tax year
  • Holding period minimum 3 years
  • No capital gains tax on disposal
  • Qualify for Business Property Relief when held for 2 years and so exempt from Inheritance Tax
  • 30% Income tax reduction of the amount invested in the EIS
  • Can defer capital gains made on disposal of other assets by investing in EIS

What is an investment bond?

  • Single Premium Life Assurance Bond
  • A tax efficient vehicle to hold a range of investment solutions to include stocks & shares, gilts & corporate bonds, commercial property, commodities.
  • Provides the Bond owner with control over tax as no income tax is payable until a chargeable event takes place, enables a higher rate tax payer to defer gains until potentially a basic rate taxpayer in the future.
  • No capital gains tax on gains within Investment Bonds.
  • Ability to take 5% withdrawal of capital without any chargeable event to tax.
  • Usually set up with multiple policy segments, providing flexibility as individual policy segments can be surrendered or assigned without affecting the remaining investment.
  • Onshore Investment Bonds are classed as basic rate tax paid on gains, Offshore Investment Bonds do not pay any tax on gains on an arising basis until a chargeable event takes place, therefore providing for gross roll up of investment returns.
  • Chargeable Events are – Part or full surrender of policy segments, cumulative partial withdrawals in excess of 5%, death, assignment of policy segments for monies worth.

What are the main benefits of an Investment Bond?

  • Regular withdrawals can be taken.
  • You can choose to invest in a range of funds, you can choose a portfolio, or you can choose a mixture of both.
  • You can usually switch between funds within your bond.
  • Tax planning benefits.
The term Collectives refer to collectivised investments, collectives Open Ended Investment Company OEIC’s and Unit Trust Investments.

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