The Seed Enterprise Investment Scheme (SEIS), The Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) might be attractive investment options for those impacted by the lifetime, annual or tapered annual pension allowances. Whilst quite different to pensions in terms of investment structure, they can offer income tax relief and capital gains tax (CGT) exemption.

Company directors who require more income, or who may be concerned about cash building up in their company - as this can cause issues for both CGT and inheritance tax (IHT) - could pay themselves a dividend, accepting the tax charge that follows. A higher rate taxpayer may then reclaim nearly all of the tax paid on the dividend by way of an investment into a VCT, which offers an immediate 30% income tax relief. The VCT investment would yield tax free income through the receipt of future dividends.

Investing in Business Property Relief (BPR) qualifying investments is also an option, or assets which qualify for Agricultural Property Relief (APR) which provides relief from IHT after two years of ownership. Once the assets qualify for BPR and APR, there are further tax planning opportunities available.

A further tax relief for external investors, investing in trading companies, comes in the form of Investors’ Relief (IR). Though the rules are similar to Entrepreneurs’ Relief (ER), IR is a separate CGT tax relief. In some cases, it may be possible for an individual to benefit from both reliefs. IR offers a 10% CGT rate on the first £10m of qualifying gains. IR can apply to disposals of shares in an unlisted trading company or the holding company of a trading group.

Top tip: The commercial background and investment risks of these tax efficient investment options should always be considered prior to any potential investment and we would recommend that you speak to your investment advisor regarding these investment risks, or a member of our Johnston Carmichael Wealth team to find out more

Read the next section of our tax planning guide: Making Tax Digital or return to the main page.

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