Can the Tax Man Help You Save? UK

Introduction

Welcome everyone, and thank you for joining this webinar. Now that many of you have completed your tax returns and paid your taxes, this session will focus on strategies to save part of the tax you’ve paid.

The objectives of today’s session are:

• Discuss savings instruments available in the market for tax efficiency.
• Show how to better manage your taxes and gain tax relief by investing.
• Explore tax planning through investments.

We will cover ISAs, pensions, Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS), and other relevant instruments.

Savings and Investment Instruments

ISAs (Individual Savings Accounts)

• ISAs allow you to invest up to £20,000 per year.
• Can be Cash ISAs or Stocks & Shares ISAs.
• Any dividends or interest earned within an ISA is tax-free.
• ISAs do not provide immediate tax relief, but returns are completely tax-efficient.

Pensions

Personal Pension Contributions

• Only personal contributions are considered here, not employer contributions.
• Basic rate taxpayers (20%) receive 20% top-up from the government.
• High-rate taxpayers (40%) can get an additional 20% relief via their personal tax return.
• Annual contribution limit: £60,000 (gross, including all contributions).

Example:

• Person contributes £17,000 from savings.
• Government adds 20%, making it £22,400.
• Increases basic rate threshold and reduces taxable income at higher rates.

Pensions provide:

• Long-term retirement savings
• Flexible risk levels (low, medium, high)
• Significant tax relief

Venture Capital Trusts (VCTs)

• VCTs invest in a diversified pool of small to medium-sized companies.
• Target sectors: Technology, healthcare, green energy.
• Tax benefits:
  • 30% income tax relief on investment (e.g., £10,000 investment = £3,000 relief)
  • Tax-free dividends annually (average ~5% for Titan Fund over 11 years)
  • Tax-free growth on capital gains after 5 years
• Investment lock-in: 5 years
• Minimum investment: ~£3,000 (depends on fund)

Example:

• High-rate taxpayer takes £100,000 dividend
• Without VCT: 39% tax = £38,500
• With £100,000 invested in VCT: 30% relief = £30,000
• Net tax payable: £8,500

Notable VCT-backed companies:

• Kazu, Zupa, Secret Escapes

Enterprise Investment Schemes (EIS)

• Invest directly into individual companies rather than pooled funds.
• Target sectors: Innovative and emerging markets.
• Higher risk, but potential for exponential returns (10-20x).
• Tax benefits:
  • 30% income tax relief
  • Loss relief (40% for high-rate taxpayers) if a company fails
  • Capital gains tax-free
  • Ability to defer capital gains tax
  • Business relief for inheritance tax if held >2 years
• Investment horizon: Typically 3-10 years (less liquid than VCTs)
• Minimum investment: £15,000–£25,000 (depending on provider)

Key difference from VCTs:

• Higher potential returns due to concentrated company investments
• Loss relief available
• Dividend income less predictable

Premium Bonds (NS&I)

• Safe investment backed by the UK government
• Deposit up to £50,000 per individual
• No interest; returns come as tax-free lottery prizes (range: £25–£1,000,000)
• Can be used to save for upcoming tax payments
• Prizes are random; probability of winning increases with number of bonds

Risk vs. Return Summary

Q&A

Q1: Minimum investment amounts for VCTs and EIS?

• VCT: £3,000
• EIS: £15,000–£25,000

Q2: ESG and Sharia-compliant funds availability?

• ESG funds available for VCTs and EIS
• Sharia compliance: not available

Q3: Minimum pension age in the UK and future changes?

• Current: 57 (was 55)
• Trend: Likely to increase over time; potential 60 in 10 years

Q4: Loss relief for AIM-listed companies?

• Only applicable if company is EIS-approved by HMRC

Q5: NS&I premium bonds – are returns tax-free or interest-based?

• No interest
• Tax-free prizes
• Prizes are lottery-based, probability increases with number of bonds

Q6: How to invest in VCTs/EIS?

• Experienced investors: directly via VCT/EIS providers
• Retail investors: recommended via financial advisor for guidance and possible discounts

Q7: Can pensions be funded from both personal contributions and employer contributions?

• Yes, combined contributions must not exceed £60,000 gross per year

Q8: Crowdfunding vs EIS

• Crowdfunding platforms may offer EIS schemes, but due diligence varies
• Established VCT/EIS providers (e.g., Octopus, Blackfinch) perform extensive due diligence

Q9: Can premium bonds be held in a company account?

• No, NS&I accounts are individual only

Q10: Financial advisor’s personal recommendation

Diversify across:

• Pensions (long-term, high tax benefit)
• ISAs (tax-free growth)
• VCTs (medium-term, moderate risk)
• EIS (high-risk, high potential return)
• Premium bonds (capital safety, potential prizes)
• Keep VCT/EIS allocation to ~10–15% of total wealth

Next Steps

• Next webinar: Using pensions and company savings to invest in commercial property.
• Individual sessions available for personalized guidance on pensions, VCTs, EIS, and NS&I.