Tax-Efficient Investing

Seed Enterprise Investment Scheme

Designed to encourage investment in very early-stage businesses, the Seed Enterprise Investment Scheme (SEIS) offers substantial tax incentives to investors. Given the higher-risk nature of startups, it provides a safety net in the form of SEIS tax reliefs, including:

• 50% income tax relief on investments up to £200,000 per tax year, regardless of the investor’s marginal tax rate.
• Capital Gains Tax (CGT) exemption on any profits made when selling SEIS shares after holding them for at least three years.
• Loss relief which allows investors to offset losses against their income tax or capital gains tax liabilities, reducing the risk of investment failure.
• CGT reinvestment relief, meaning 50% of capital gains reinvested into SEIS can be exempt from CGT.

Investors must hold SEIS shares for a minimum of three years to retain these benefits. SEIS is ideal for investors willing to take on high risk in return for significant potential tax advantages and high-growth opportunities.

Enterprise Investment Scheme (EIS)

One of the best tax-efficient investments available, the Enterprise Investment Scheme provides an array of tax reliefs and incentives across income tax, capital gains and inheritance tax to investors investing into startups and scaleups:

• 30% income tax relief on investments up to £1 million per tax year, or £2 million if at least £1 million is invested in knowledge-intensive companies.
• Capital Gains Tax deferral relief, allowing investors to defer tax on gains reinvested into EIS-qualifying businesses.
• Inheritance Tax (IHT) relief—after two years, EIS shares qualify for Business Relief, making them 100% IHT-exempt.
• Tax-free growth, meaning no CGT is due on gains from EIS shares after a three-year holding period.
• Loss relief, where losses can be offset against income tax or CGT, reducing investment risk.

EIS is well-suited to investors looking for diversified exposure to early-stage but high-growth companies while benefiting from a strong set of tax reliefs.

Self-Invested Personal Pension

A Self-Invested Personal Pension (SIPP) functions similarly to a SSAS but is available to individual investors rather than employer-backed schemes. This option offers:

• Full pension tax reliefs, including tax-free growth and tax-free withdrawals of up to 25% from age 55 (rising to 57 in 2028).
• A wide range of investment choices, including stocks, bonds, funds, ETFs, and commercial property.
• Flexible retirement options, allowing phased drawdowns, annuity purchases, or full withdrawal (subject to income tax).

While SIPPs provide greater investment freedom than traditional pensions, they require active management, making them most suitable for experienced investors comfortable with long-term planning.

Individual Savings Account

The ISA remains a cornerstone of tax-efficient investing in the UK, allowing individuals to invest up to £20,000 annually without incurring income tax or capital gains tax. While traditionally associated with cash savings, ISAs include investment options:

• Stocks & Shares ISAs, enabling investors to hold equities, bonds, and funds with tax-free capital growth and dividends.
• Innovative Finance ISAs (IFISAs), allowing investments in peer-to-peer lending and debt-based securities with tax-free interest.
• Lifetime ISAs (LISAs), offering a 25% government bonus on contributions up to £4,000 per year, primarily for first-time property purchases or retirement.
• Junior ISAs, designed for saving on behalf of children, with a tax-free allowance of £9,000 per year.

With their flexibility and tax efficiency, ISAs are an essential tool for both short- and long-term investment strategies.

Small Self-Administered Scheme

A Small Self-Administered Scheme (SSAS) is an occupational pension scheme offering greater control over pension investments. This investment strategy is typically used by company directors and senior employees, SSAS pensions:

• Allow up to 12 members who can pool funds for investment.
• Provide full access to standard pension tax reliefs, including tax-free growth and tax-efficient withdrawals in retirement.
• Permit corporate contributions, reducing a company’s corporation tax liability.
• Enable direct investments in commercial property, company loans, and private equity, unlike most standard pensions.

SSAS pensions are best suited to business owners seeking flexible pension investment options and estate planning advantages.

Venture Capital Trusts

Venture Capital Trusts (VCTs) are publicly traded investment funds listed on the London Stock Exchange that pool investor capital to provide venture funding for small, high-growth businesses.

Managed by professional investment teams, these trusts aim to generate returns by investing in a diverse range of emerging companies across various sectors.

Unlike SEIS and EIS, VCTs do not offer CGT deferral or loss relief, making them better suited for investors focused on tax-free dividends and long-term growth.