Have some money to invest? There may be options that could result in a smaller tax bill…
Featured Products Promotional FeaturesPosted by: Dental Design 6th October 2021
If you’ve been lucky enough to come into some money, it’s always a good idea to speak with a specialist dental accountant to explore all your options for investing it. What is your attitude to risk? Are you ready to look at something a bit different (so, riskier), to the other places that can be a home for a windfall?
Outside the box
Your accountant can go through the various tax-advantaged schemes that you might like to consider, so you can weigh up if one could be right for you. For example, what about looking at enterprise investment schemes (EISs) or venture capital trusts (VCTs)? Both of these come with a risk – as well as offering attractive tax breaks. For EISs and VCTs, the rate of income tax relief is equal to 30% of the amount you are investing in and is given as a reduction on your tax bill. Invest £15,000 and your bill will be reduced by £4,500, for example.
One key difference between an EIS and a VCT investment is that EIS tax relief can be taken back to the previous tax year; this will accelerate the tax saving. Also, if you sell or transfer your EIS investment within three years of making it, the tax relief can be clawed back. For VCTs, the clawback period is slightly longer, at five years. Another important difference is that dividends from EIS companies are taxable, under the normal rules (dividends from VCTs are tax exempt).
Another incentive?
With EIS investments, there is another “carrot” in terms of Capital Gains Tax deferral relief, if you have a CGT bill for the year of the investment, or the one before it. You can claim a deferral of the gain, until you sell or transfer your investment (to someone other than a spouse or partner). This incentive isn’t offered with VCTs.
Selling or transferring
As long as you have owned the EIS investment for at least three years, if you sell it at a loss you can use it to reduce the gains from other sales/transfers that year, or in subsequent years. This is not an option if you sell/transfer a VCT investment at a loss. Sell either an EIS or VCT investment at a profit, though, and the gain is tax exempt.
So, swings and roundabouts, then? Well riskier EIS investments do tend to have greater gains (and you might be able to reduce your tax bill) and VCTs can provide an income that is tax free – but nothing is ever guaranteed, whatever route you go down!
It’s all about risk, good research, pragmatic decision making and thinking about the long-term. As a dental practice owner, principal or professional you might have had a “strange” year, let’s say, but planning ahead and being positive is a tried-and-tested foundation for success and for optimising your personal and business finances. Figurit is a team of specialist dental accountants, who don’t just have knowledge of the principles of chartered accounting, but are also experienced in working with the dental industry, and know all about the specific pressures – and opportunities – it faces. If you want to do something a bit different with an investment, Figurit could help you to consider avenues that you had not previously considered and that could be profitable in ways that you’d never dreamed.
The best tip is, as ever, is to get all the information at your disposal before making your move. There are some excellent tax breaks out there, if you know where to find them.
For more information, please visit https://figurit.com
or call Figurit (formerly known as Lansdell & Rose) on 020 7376 9333.
