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Tax Efficient Investments

Newsletter issue - March 2012.

Most allowances for tax efficient investments are fixed for each tax year and cannot be carried over to the next year if not used. If you have money to invest you may want to use your allowance for 2011/12, or in some cases wait until 2012/13 when new rules and new limits apply.

Here is a brief summary of the 2011/12 and 2012/13 investment limits:

Investors who subscribe for shares under the Enterprise Investment Scheme (EIS) can currently receive income tax relief at 30% of up to £500,000 invested in one year. This annual cap will rise to £1 million from 6 April 2012. However, any amount can be invested in EIS shares to defer tax due on a capital gain made in the period up to three years before the EIS shares were acquired, or to up to one year later. An investment in EIS shares can be treated as if it was made in the previous tax year, to apply the income tax relief against the taxpayer's tax due for the earlier year.

The conditions companies need to meet to raise funds using EIS are also being relaxed from April 2012. These conditions are still very complex so talk to us first before making a decision to use the EIS scheme.

The Seed Enterprise Investment Scheme (SEIS) is a new scheme due to start from 6 April 2012, subject to the law being passed by Parliament. This will operate like a mini version of the EIS, but the scheme will only be available for five years. The maximum investment by a taxpayer in one tax year will be £100,000, with income tax relief given at 50% of the invested amount. Any gains made on the SEIS shares will also be tax free as long as the investment conditions are not broken and the shares are held for at least three years. In addition if you make a capital gain in 2012/13 (on any asset), you can invest that gain in SEIS shares and achieve 100% tax exemption on that gain. Thus the maximum tax relief for investing in SEIS shares could be 78% of the amount invested.

Investing in shares issued by a Venture Capital Trust (VCT) will give you 30% income tax relief on the amount invested, capped at £200,000 per tax year. This investment limit is not expected to increase in 2012/13. Dividends and gains from the VCT are tax free if the VCT shares are held for at least five years.

Individual Savings Accounts (ISAs) can be taken out as cash only accounts (maximum £5,340) or stocks and shares accounts up to £10,680. These limits are for 2011/12. The investment limits for 2012/13 are £5,640 for cash only accounts and £11,280 for stocks and shares.

You can now open a Junior ISA (up to £3,600 per year) for children aged under 18, who do not already have a child trust fund account in their name. Individuals who are aged 16 or 17 can also open a standard cash only ISA in addition to the Junior ISA.