Investors with an appetite for investment risk

Enterprise Investment Schemes

Enterprise Investment Schemes (EIS) offer tax relief on an investment in new shares of an unquoted trading company which satisfies certain conditions. For the tax year 2009/2010, investment of up to £500,000 can be made to secure income tax relief at up to 20% with relief being restricted to the amount of income tax otherwise payable.

Unlimited capital gains tax (CGT) deferral relief is also available on an investment in an EIS provided some of the EIS investment potentially qualifies for income tax relief. The relief means that for those who have disposed of assets before 6 April 2008, which resulted in a CGT liability at a rate of more than 18% (after taper relief), investment into EIS shares within 3 years of the disposal would mean that the original gain could be deferred and would (at least while the current rate remains in force) be taxed at 18% when the EIS shares are realised.

However, careful calculations will need to be carried out for disposals before 6 April 2008 as the applicable CGT rate could be as low as 5% (business assets) or 12% (investment assets) because of taper relief. Deferral of a capital gain means taper relief is lost which, with the incertaintiy over the future rate of CGT, could ultimately lead to a higher tax liability.

Any capital gain on the disposal of EIS shares will be exempt, as long as they are held for more than 3 years.

Venture Capital Trusts

Venture Captial Trusts (VCT) offers income tax relief for the tax year 2009/2010 at up to 30% for an investment of up to £200,000 in new shares, with relief being restricted to the amount of income tax otherwise payable. There is no ability to defer CGT as with an EIS investment but dividends and capital gains generated on the amounts invested within the annual subscription limit are tax free.

For both the EIS and the VCT it is essential that would be investors are aware of the likely greater investment risk and lower liquidity that will have to be accepted in return for the attractive tax reliefs.

For advice on all aspects of financial planning, please contact Rob MacKenzie at Littlejohn Wealth Management rmackenzie@littlejohnllp.com

Littlejohn Wealth Management Limited is authorised and regulated by the Financial Services Authority.

Year End Strategies 2009/10

Disclaimer:
This guide is prepared as a general guide only. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher. Always seek professional advice before acting.