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In this article, you will learn the relationship between Year-End Tax Planning & Tax-efficient investments.

There are various reliefs available on various individual investment entitlements. When used correctly, these reliefs can slash your tax liability. 

Venture Capital Trusts: If you are investing in new Venture Capital Trusts (VCTs), then you are entitled to a tax-relief of 30{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} on investments amounting to up to £200,000 annually. There will be no capital gains on profits when these VCTs are sold. Also, if you receive dividends on these VCTs, you don’t need to declare these dividends on self-assessment tax returns as these dividends are tax-free. 

  1. Enterprise Investment Scheme (EIS): Eligible investors are entitled to claim an income tax relief of up to 30{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} on investments amounting to up to £1 million annually. The investment threshold touches £2 million if the investor invests in knowledge-intensive companies. 

Furthermore, if you hold this investment for a period exceeding 3 years, then capital gains are tax-free. However, there are a few IFs and BUTs involved in this case, and if you want to know more, reach out to us for a 15 Minute Free Call from top-notch tax experts. 

  1. Seed Enterprise Investment Scheme (SEIS): If you are an investor and are mulling over investing up to £100,000 annually in a start-up company that qualifies for SEIS, then you will be entitled to generous tax relief of 50{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}. Also, the capital gains on SEIS investment will be tax-free if the investment is held for a period exceeding 3 years. 

Year-End Tax Planning: Pensions & Charitable Giving

You are not entitled to Personal Allowance if your income exceeds £100,000. Rather, any income between £100,001 to £125,000 comes under a hefty tax rate of 60{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}. Likewise, if your personal income exceeds £150,000, then it is taxed at a mammoth rate of 50{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}. 

However, there are certain legal ways through which you can reduce these hefty income tax rates. These are as follow:

  • by making pension contributions,
  • by deferring income to a later tax year,
  • by passing income yielding assets to spouse with lower income,
  • and, by making gift aid payments.

Gift Aid payments

If you are a UK resident and a taxpayer, then the organizations you give charity to are eligible to claim that basic rate of tax that you have already paid on the donation. It means that each £1 that you donate is worth £1.25 to the charity organisation. 

If you fall in the higher-rate income tax band, then you can claim the difference between the basic rate and the higher-rate on the total value of the donation. It means that if you fall in a higher-rate income tax band, you can claim 25p in tax relief for each £1 that you donate to a charity organisation. 

Still, finding it difficult to grasp? Reach out to us for a 15-Minute Free Call. 

Pension contributions

When you claim tax relief on pension, a certain portion of your tax money finds its way to your pension pot. When it comes to tax relief on pension, it is paid at a higher rate of income than you have paid. 

The tax relief on pension for different bands are as follow:

  • 20{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} for basic-rate taxpayers,
  • 40{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} for higher-rate taxpayers, 
  • and, 45{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} for additional rate taxpayers. 

Let us explain this with a simple example. 

If you belong to basic-rate income tax band and are mulling over contributing £100 into your pension from the salary, it will actually cost you £80. The rest of the £20 will be contributed by the governments from the tax that they have already deducted in tax from your salary. 

Likewise, individuals belonging to a higher rate (40{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af}) and additional rate (45) income tax bands will pay only £60 and £55 respectively for £100 of pension savings amount. 

In Scotland, tax relief on pension is applied in a slightly different manner. 

At IBISS & CO, our tax advisers have saved hundreds of thousands of pounds of individuals in terms of Inheritance Tax. They can do the same for you. 

Reach out to us today for a 15-Minute Free Call.

To make the most out of your year-end tax planning, reach out to our experts now. We, here at IBISS & CO, will craft a strategy that will provide security and the best structure for your financial matters.

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