Tax year end to-do list
The end of the tax year is in...
In the last tax year, the Government collected over £1 trillion in revenue, equivalent to around 40% of GDP – a level not seen since the early 1980s. What’s more, taxes are on course to reach a new post-war high.
Frozen thresholds have pulled millions into higher income tax brackets.
Over a million more people will have to pay tax on dividends once the dividend tax allowance is halved again – to a mere £500 a year – in the new tax year (6 April).
The number of investors forced to pay capital gains tax is set to have trebled since 2010, in part due to the two consecutive cuts of the capital gains tax allowance, first to £6,000 then £3,000 from 6 April.
Despite some changes in this week's Budget, the OBR predicts that the overall tax burden will still hit the highest level since 1948 by 2028/29. Where could experienced investors turn for relief?
Here are five things that could help experienced investors mitigate the effects and save tax this tax year – or, in some cases, claim back tax you already paid last year – provided you meet certain imminent deadlines to invest.
- Invest in a VCT– save up to 30% income tax and get tax-free dividends
- Invest in EIS– up to 30% income tax relief
- Invest in SEIS– save up to 50% income tax and capital gains tax
- Invest in an AIM IHT ISA– your subscription could potentially be IHT-free after two years
- Make the most of your ISA and SIPP allowances– invest in our exclusive portfolios, managed for you by our investment experts.
Tax rules can change and benefits depend on circumstances.
Although the official minimum holding periods are 5 years for VCTs, 3 years for EIS and SEIS and 2 years for IHT portfolios to qualify for or retain some of the tax reliefs, you should consider all of these as much longer-term investments. To qualify for IHT relief the investment must still be held on death. To comply with rules from the Financial Conduct Authority, you may have to wait 24 hours before you can apply online for EIS and SEIS. If planning to invest, please consider this.
Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. When you invest in early-stage businesses you should expect some to fail. VCTs, EIS and AIM investments are high risk and only for experienced investors. You could lose all your capital: you should not invest money you cannot afford to lose.
1. Invest in a VCT – up to 30% income tax relief and tax-free dividends
When you invest in a VCT, you may claim up to 30% income tax relief for the tax year for which you make the investment. You can claim back tax you’ve already paid over the year. Alternatively, if investing early in a tax year, you could ask HMRC to change your tax code and have your subsequent income tax reduced each month under PAYE.
Furthermore, any dividends paid out from VCTs are tax-free – so won't use up your dividend allowance, which is currently £1,000, to be reduced to £500 on 6 April.
The sooner you invest in a VCT, the sooner you may start benefitting from any dividends it may pay, but please note VCT dividends are variable and not guaranteed.
2. Invest in EIS – save up to 30% income tax this tax year or the last, plus defer capital gains made elsewhere
When you invest in EIS, you can offset up to 30% income tax relief against your current year’s tax bill – or the previous year’s if you use carry back. Furthermore, any growth is tax free and the investment should be IHT free after two years. You may also defer tax on capital gains made elsewhere, for as long as that gain is invested in an EIS-qualifying investment. If things don’t work out as planned, you can use loss relief to offset losses against income.
What is EIS/SEIS carry back?
EIS and SEIS investments offer a “carry back” facility. You can elect for all or part of your EIS/SEIS shares acquired in one tax year to be treated as though they had been acquired in the previous tax year.
This gives investors the option to offset the tax relief against income tax from the previous year.
You can only do this if you have sufficient EIS or SEIS allowance in the tax year to which you’re carrying back, as long as you invest that gain in an EIS-qualifying investment. If things don’t work out as planned, you can use loss relief to offset losses against income.
There’s still time to apply EIS relief to your 2022/23 income tax bill
Some of our featured EIS still have deadlines targeting deployment within this tax year – this means when you invest you should be able to claim up to 30% income tax relief for the current tax year or carry back to 2022/23 – not guaranteed. Tax rules can change and benefits depend on circumstances. Please be aware of the deadlines – you can read more and apply online.
3. Invest in SEIS – save up to 50% income tax and capital gains tax
The most generous tax reliefs are reserved for investing in the youngest – and therefore highest-risk – companies, under SEIS.
These include up to 50% income tax relief, with the option to carry back to the previous year, and up to 50% capital gains tax relief. So, on a £100,000 investment for instance, you could potentially claim back up to a total of £64,000.
As with EIS, any growth is tax free, the investment should also be IHT-free after two years and you could claim loss relief if things don’t go to plan. Bear in mind tax rules can change and benefits depend on circumstances.
There’s still time to apply SEIS relief to your 2022/23 income tax bill
There are still some SEIS funds targeting deployment within this tax year – this means when you invest you should be able to claim up to 50% income tax relief for the current tax year or carry back to 2022/23 – not guaranteed. Tax rules can change and benefits depend on circumstances. Please be aware of the deadlines – you can read more and apply online
Free factsheet: VCTs, EIS and SEIS tax reliefs compared
This short and simple factsheet explains and compares side-by-side the current tax treatment of these three government-endorsed schemes.
Find out:
- What VCTs, EIS and SEIS are, in a nutshell
- Their risks and benefits
- How you could claim up to 30-50% income tax and other tax reliefs
- How you might be able to claim back some of last year’s tax
- How you might receive tax-free dividends
4. Invest in an AIM IHT ISA – your subscription could potentially be IHT-free after two years
ISAs are not normally IHT free. However, when you invest in an AIM ISA, your money could potentially be IHT-free after two years, provided you still hold the investment on death, in addition to the usual ISA benefits of tax-free income and growth.
5. Make more of your ISA and SIPP allowances – with two Managed Portfolio services, exclusive to Wealth Club
You can now invest your ISA or SIPP in long-term growth opportunities selected and managed for you: our Quality Shares Portfolio and Wealth Club Portfolio Service.
You can invest new money or transfer existing investments. Note: these discretionary managed portfolios are long-term investments which can fall as well as rise in value and returns are not guaranteed.
Quality Shares Portfolio – ISA, SIPP or general investment account
The Quality Shares Portfolio is managed by Charlie Huggins, who before joining Wealth Club as Head of Equities ran the £300+ million HL Select UK Growth Shares fund at Hargreaves Lansdown.
The portfolio comprises 15-20 global listed companies Charlie has observed for a long time, invests his own money in, and has chosen for their resilience, financial strength and long-term growth potential. Please bear in mind this is a concentrated portfolio of equities, hence high risk.
In Charlie’s own words: “When you invest, I tell you what I am doing with your money and why. I offer my unvarnished views on companies and markets. I share investment ideas and principles that you can apply to the rest of your portfolio. No other investment service offers this.”
NEW: Wealth Club Portfolio Service – ISA, SIPP or general investment account
The Wealth Club Portfolio Service provides investors with well-diversified, institutional-grade portfolios (the type a private bank or wealth manager might build for you), but without the hefty price tag.
We are not aware of any similar service that can match it.
Each portfolio is a diverse mix of 30–45 actively managed and low-cost index funds as well as investment trusts. They give you exposure to equities and bonds from around the world, but also infrastructure and other private assets.
You can choose from five portfolios – Conservative, Balanced, Growth, Adventurous Growth and Income – based on the level of risk you are comfortable with. We do the rest: make the investment decisions and regularly rebalance the portfolio.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.