What is a Tax Wrapper and why should I be interested? Part 4

What is a Tax Wrapper

This is the fourth in the series of tax wrapper articles I’ve written. Check out my LinkedIn page for a copy of my first, second and third Tax Wrapper articles about pensions, Stocks and Shares ISAs and Investment Bonds.

A Tax Wrapper is a beneficial structure provided by the UK Government which you can wrap around your savings and investments. These wrappers effectively shield your money from taxes that you would otherwise have to pay.

For the sophisticated Investor a Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (Seed EIS) may be an attractive option. These allow the Investor to access small, unlisted or AIM listed Companies and offer several significant benefits:

  • 30% of the sum invested (subject to different maximum amounts) can be used to obtain an immediate Income Tax Rebate from the taxpayers Income Tax bill for EIS or VCTs. With Seed EIS schemes, 50% of the sum invested can be used to obtain an Income Tax Rebate. With EIS and Seed EIS schemes, 30% and 50% respectively of the sum invested can also be carried back a tax year and offset against last year’s Income Tax bill. Shares must be owned for different periods ranging between 3 and 5 years for this benefit not to be clawed back.
  • Any dividends paid on a VCT are tax free.
  • On the sale of VCT shares, any capital gains realized are not subject to Capital Gains Tax. With Seed EIS schemes 50% of the Capital Gains Tax will be mitigated with no tax to pay. With EIS Schemes the capital gain can be deferred.
  • Capital losses can also be set off against an investment into an EIS Scheme and used to pay less Capital Gains tax or Income tax. This loss relief can be claimed either in the tax year of disposal or the previous tax year ( which runs from 6th April to 5th April in the following year.)
  • EIS and Seed EIS Shares are exempt from Inheritance Tax after 2 years of ownership.
  • These are classed as high risk investments and are suitable for investors who have experience and can be categorised as sophisticated, with some capacity for loss; there is an expectation that you would already be making substantial contributions into Pensions and Stocks and Shares ISAs and that you would only invest 10 or 15% of your overall investment capital into these wrappers.

In conclusion, using tax wrappers with your investments can save you a significant amount of tax and really boost the growth of your capital.

If you would like a conversation about these wrappers then feel free to telephone or face time me- I’m happy to help!

Russell Blackhurst Llb dip PFS

Lazenby’s Financial Services

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