As we head toward the end of the personal tax year, we’re constantly talking with clients about ways they can invest or save some of their money before the end of the year and get a bit of tax relief to boot. There are many tried, tested and well known investment strategies. For example, it’s pretty common knowledge at this point that the government likes you to save for your retirement, so offer some pretty generous tax breaks for paying into your pension pot.

But are you aware of some alternative investment strategies that also offer tax breaks, such as EIS, SEIS and VCT? Depending on your attitude to risk, they could be a nice addition to your arsenal.

Enterprise Investment Scheme (EIS)

The EIS scheme is designed to promote investment into unlisted early-stage businesses. Naturally, backing an early stage unlisted business does present a higher risk to your capital, so to encourage people to invest in the scheme, the government will offer income tax relief of 30% on the value of your investment. So, you invest £5,000 in an EIS company, you get £1,500 knocked off your tax bill for the year. Not bad!

But this isn’t where it ends. Provided that you hold your EIS shares for a minimum of three years (subject to certain conditions), then you also will not have any Capital Gains Tax to pay on the disposal of the shares.

Finally, recognising that EIS investment does present a higher risk, you are also able to claim loss relief if you sell your shares and they are worth less than your original investment, and you can offset these losses against your taxable income in the current year or prior tax year.

Seed Enterprise Investment Scheme (SEIS)

Looking to invest in an even earlier stage business that EIS caters for? Then SEIS may be the scheme for you. This scheme provides support for the first £150,000 of external equity capital a business raises within its first two years of trading. Naturally, therefore, these are some of the highest risk investments you could make, and so the tax breaks increase to compensate for this.

Under SEIS rules, you get 50% income tax relief upfront, together with the CGT relief and loss reliefs that EIS schemes benefit from above.

Venture Capital Trusts (VCTs)

Slightly higher up the food chain in terms of company size, a VCT is a listed company that pools investment funds to then distribute and invest in other eligible companies. As these investments are managed and the portfolio will be in a range of companies, the level of risk decreases.

As such, some of the favourable tax breaks that EIS and SEIS receives are removed to reflect this, but there’s still some great benefits to be had from VCT investments. You still receive 30% income tax relief upfront and in addition, any dividends paid out from your VCT investment are not subject to income tax.

Also similarly to EIS and SEIS, the capital growth on your investments are not subject to CGT, but with a VCT investment, you don’t get the loss relief listed above for EIS and SEIS

What are the limits?

There are limits to how long you have to hold your investments to make the most of the reliefs, and also how much you can invest in each.

For EIS and SEIS, you have to hold the shares for 3 years. You can invest up to £100,000 into SEIS schemes and up to £1,000,000 in EIS schemes each year.

For VCTs, you have to hold the shares for 5 years, and you can invest up to £200,000 each year.

Despite the great tax benefits however, we would always suggest that these types of investments be assessed primarily from an investment point of view, and not just for their tax benefits.

For investment advice and support, we would always recommend discussing your needs with a recognised and trusted independent financial adviser. As clients of Hive, we have access to a wide network of partners who can help with your requirements, dovetailed together with our tax advice for complete financial happiness this new tax year!