best-acc0For a number of years now, as a practice, we have been spouting on about the merits of something called EIS/VCT investments for saving Tax.  However it seems that no matter how much we promote these as fantastic options to potentially reduce client’s tax liabilities they are just not taken up as frequent as perhaps they should. Given the very significant budget changes in July, these could be even more valuable a proposition than ever.

People are inclined to think they need to be higher rate tax payers to use things like this but in truth a straight forward PAYE employee within the basic rate band of tax can benefit from these investments and potentially get themselves a Tax rebate.

If you already invest in an ISA annually, you may want to take a look at this as an alternative. While an ISA can give you Tax free savings, you will be pretty hard to find an investment that will give you back £1,500 for every £5,000 you invest, immediately in the year you invest it!!

Let me give you an example:

Bobby earns £20,000 per year as an employee at Tesco.  As a basic rate tax payer on a standard tax code his annual tax liability for 2015/16 will be £1,879.80 of tax and £1,432.68 of National Insurance a total of £3,312.48. taken at source via his payslip over the year.

If Bobby had savings available to invest in an EIS/VCT of £11,041.60 he could receive a full refund of the Tax and NI suffered.

This results in  an investment of £11,041.60 for a minimum of 3 years which has the potential to grow and has some Inheritance Tax benefits too, but I will save this for another time.  The actual physical monies invested is only £7,729.12 as HMRC will have given you back the £3312.48.  In three years time you potentially receive your original investment and any growth.

As far as we are aware, no ISA will give you this return in a three year period.

There are obviously many things to consider and these type of  investments must be prepared by a licenced financial advisor.

The benefits of these investments are very much higher if you are looking at trying to extract significant funds from your own company in light of the chancellors changes to dividend taxation for 2016/17.

We have a number of examples where this has worked fantastically well for our clients, which we would be pleased to share with you.

Please do contact John Best, if you would like to hear more about this very useful tax saving strategy.