START-UP ADVICE

INVEST IT
PROTECTING YOUR
WEALTH
Jamie Perkins, Partner at Westminster Wealth Management
www.westminster-wealth.com
There is nothing wrong with wanting to take care of
your hard earned money, but there are right ways
and wrong ways of doing this, particularly in the eyes
of HMRC. Several celebrities have appeared in the
news recently because they have invested in suspect
schemes that are deliberately designed to avoid tax, yet
there are other Government-authorised ways to invest
in a tax efficient manner which won’t trigger the ire of
HMRC.
Our research at Westminster Wealth Management
suggests that there are business models, structures
and portfolio approaches that allow investors to
moderate (or exaggerate if appropriate) the risks
associated with tax efficient investments in order to
take advantage of the tax benefits within their portfolio
and overall financial planning.
Tax efficient investing can take a number of forms with
the most popular government authorised products for
this type of investing being Seed Enterprise Investment
Schemes (SEIS), Enterprise Investment Schemes (EIS)
or Venture Capital Trusts (VCT) all of which invest in
smaller companies. Each of these structures offer tax
based incentives to offset the potential failure rate of
smaller companies that is much higher than traditional
investment in stock market listed firms. This legislation
around EIS, VCT and now SEIS is designed to even that
playing field a little to encourage investment at the
grass roots of the economy - but it does not remove
the risks associated.
At present SEIS in particular - with its combination of
50% income tax relief with the potential to mitigate
capital gains tax - is a highly attractive tax-advantaged
structure.
SEIS investments were introduced in April 2012
to encourage investment in new, small start-up
companies with less than 25 employees. Too few
high net worth investors understand how important
SEIS can be to a portfolio. In November the Treasury
revealed that over 1,100 companies had raised money
through the SEIS, with the average amount raised
being £72,000 per company, which is less than half the
maximum £150,000 permitted.
The maximum amount a company can raise is
£150,000 in total (this is not an annual threshold) and
the number of companies that are fit for investment is
limited, so investors should not wait until the end of the
tax year to use any SEIS allowance because the best
companies for investment may have already reached
their threshold. The main benefits of SEIS are:
• 50% income tax relief on investments up to
£100,000 per tax year (limited to an amount equal
to the investor’s income tax liability).
• Investment can be used for income in the current
or previous or both tax years offering a maximum
investment of £200,000 in the current tax year.
• 50% Capital Gains Tax (CGT) reinvestment relief
against capital gains realised in the current or
previous tax year (i.e. a reduction in the CGT rate
from 28% to 14%).
• No CGT payable on gains realised on the disposal
of the investment.
• Ability to offset any capital losses realised against
other income or gains, potentially reducing capital at
risk to 13.5% of the amount invested.
• 100% inheritance tax relief for investments held
for more than two years, or immediately if the
investment qualifies as replacement property.
Investments in smaller companies offer greater risk of
capital loss than many other types of investments.That
is why these five key points are important for investors
to consider as a first step toward investing in this
frequently misunderstood area of tax efficient personal
finance.
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