It is rare to survive a Budget unscathed. In the past few years the Chancellor hasn’t missed a chance to tinker, often by introducing further restrictions affecting wealthier investors.With the budget approaching, here are three things investors should consider doing before the budget.
Maximise your pension contributions
So, if you can, consider contributing the maximum now, whether that is £40,000, £10,000 or £4,000.
Different allowances apply depending on your earnings and whether or not you are already drawing a pension. If you haven’t used your pension allowances in full over the previous three tax years, you would be wise to do so, using something called ‘carry forward’. Someone restricted to investing £10,000 this year could potentially invest up to £100,000 in one go using this facility and receive up to 45 per cent tax relief on the full amount.
Invest in a VCT
When you invest in a VCT you get up to 30 per cent tax relief. So on a £10,000 investment you could get up to £3,000 off your tax bill. You can invest up to £200,000 in the tax year. At the moment the government is consulting on how the UK funds its high-growth businesses, there is credible talk that as a result tax relief on VCTs might be tinkered with. Therefore if you want to invest in a VCT this tax year you may want to consider doing it before the Budget. Certainly this is what other VCT investors have been doing. Record amounts of money have been raised much earlier than usual. Popular VCTs include Mobeus, Octopus Titan and Unicorn AIM VCT.
Consider an asset-rich EIS
EIS offer more attractive tax reliefs than VCTs. You get 30 per cent upfront tax relief, plus loss relief if your investments don’t work out. In addition, you can defer capital gains made elsewhere (e.g. through the sale of share or an investment property). Lastly, after two years your EIS investments should be free of IHT if you still hold them on death.
Each year you can invest up to a £1 million in EIS. A popular type of EIS is one that invests in so called ‘asset-rich’ businesses – think of a pub that owns the freehold or a children’s nursery that owns its building. This type of business is attractive because even in case of failure, the assets should still have some value and, along with the tax relief, should help protect the downside. If you want to invest in an ‘asset-rich’ EIS make sure you chose one which allots before the Budget. Popular asset-rich EIS allotting before the Budget include West Berkshire Brewery EIS; Guinness EIS, Seneca Managed Storage 2 EIS.Alex Davies is CEO and founder of Wealth Club.
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