There have been many changes affecting the personal investment industry over the last 20 years including a number of tax incentives to encourage wider investment provision by the individual for their own benefit.  In today's environment, tax-efficient investments are more limited, in particular, those related to pension schemes.   The EIS and SEIS schemes are now the only UK tax efficient schemes to offer Capital Gains Tax ("CGT") Deferral Relief.  With the changes to tax relief on pensions, investors may wish to consider alternative investments, such as EIS, SEIS and VCTs, alongside their pensions.

The following table illustrates EIS tax benefits compared to other tax efficient investments, by way of illustration but please bear in mind these will depend on individual circumstances and the notes refer to the relevant section for each tax relief.

UK Tax-efficient Investment Comparison Table

 

 

VCT

ISA

Pension

EIS

Income Tax Relief

30%

Nil

Up to 50%

30%

Capital Gains Deferral

Nil

Nil

Nil

Up to 28% (B)

IHT Free

No

No

Yes

Yes

Tax Free Exit

Yes

Yes

Yes/No

Yes/No (C)

Tax Free Dividends

Yes

No

N/A

No

Limits 2012/13

£200,000

£11,520 (D)

Up to 100% of earnings or £50,000 (carry forward may also be available) (A)

£1M (E)

Min Holding Period

5 years

None

To age 55+

2 years for IHT

3 years for EIS

 

(A) With effect form 6 April 2011, the Annual Allowance ("AA") has been reduced to £50k, with the following features:

  • The reduced AA applies to all i.e. there are no special restrictions for "high earners" (as there were in the 2009/10 and 2010/11 tax years)
  • Within the AA, member contributions benefit from tax relief at the individual's marginal rate of tax, i.e. up to 50%
  • Within the AA, relievable member contributions are limited to 100% of employment earnings. 
  • The reduction in the AA is, however, accompanied by a "Carry Forward" facility, allowing pension scheme members to Carry Forward the difference between £50k and the lesser level of total contributions made in the previous three tax years.

(B) Gains arising in 2011/12 to higher rate UK tax payers are chargeable at 28%.

(C) There is no tax free exit for shares for which EIS deferral relief only was claimed.

(D) Within this overall limit is an annual limit of £5,760 for the amount the ISA can hold as cash investments as opposed to stocks and shares.

(E) Up to £1M of investment may be carried back to the previous tax year if the limit for that year was not fully utilized.

For more information about EIS Funds and Portfolios please download the Factsheet for Professional Advisors here..

For more information about EIS Tax Reliefs please download the Tax Reliefs at Work Factsheet here..

 

Parkwalk UK Technology Fund IV Open: Now .  Oxford Gateway EIS Portfolio Open: Open.  Oxford Gateway IHT Portfolio Open: Now.  The Imbiba London Bar & Restaurant EIS Fund 2 Open: Now.  Parkwalk Opportunities EIS II Open: Now.  CHF Pip! plc Open: Now.  Artifice Entertainment Ltd Open: Now.  Ascension Creative Enterprises EIS Fund  Open: Now.  ASCEND (Ascension Seedcapital for Creative Enterprise and Digital) SEIS Fund Open: Now.  City Pub Companies East and West Open: Now.  IN Showjumpers 2013 PLC Open: Now.  The Imbiba London Bar & Restaurant EIS Fund 2 Open: Now.  Test Open: Now.  Test Open: Now .  The Seaside Company Dorset EIS Offer Open: Now.  Water Babies Musical UK Limited Open: Now.  Renewable Heat Energy EIS Offer Open: Now.  The Three Stones Media EIS Fund Open: Now.  The Merepark Solar EIS Fund 2  Open: Now.  Rural Broadband EIS Fund Open: Now.  Deepbridge EIS Technology Growth Fund  Open: Now.  Oakfield II – UK Special Situations Fund Open: Now.  Sapphire Building Services Limited Open: Now.  Tesseract SEIS Service 3  Open: Now.  Select Media SEIS  Open: Now.  Select Television Production EIS  Open: Now.  Triple Point EIS Open: Now.