ensure that you invest your money in the most tax efficient way
If you ensure that you invest your money in the most tax efficient investment planning way, it can make all the difference for you getting the best return on your original investment. There are numerous Tax Efficient Investment Planning schemes, these allow the options of tax allowances, tax reliefs and incentives. During your financial journey, there will almost always be some form of tax implications connected to your personal financial activities.
The three main taxes people are liable to pay in their lifetime are:
- Income Tax – this is paid on your profits or income;
- Capital Gains Tax (CGT) – due on the sale of an asset; or
- Inheritance Tax (IHT) – which is charged on an estate upon death.
There are some capital expenditures that can be written off against your business profits or against taxable income. If you need to supply particular equipment or assets in order for you to do your job, then you can use Capital Allowances to reduce tax payable.
Research and Development (R&D) Tax Credits
Research and development (R&D) tax credits are a government incentive aimed to reward UK based companies for investing in innovation. You may qualify for tax relief on qualifying R&D expenditure if your company pays Corporation Tax and meets qualifying R&D activity. These can be a beneficial source of cash for businesses to invest in accelerating their R&D, being able to hire new staff and with the ultimate goal to grow the company.
If a company is spending money developing new products, processes, services or enhancing existing ones, it will be eligible for R&D tax relief. You can make an R&D tax credit claim if you are spending money on innovation. This is in the form of either a cash payment and/or Corporation Tax reduction.
Enterprise Investment Scheme (EIS)
Tax reliefs may be given to investors who choose to invest in smaller, high-risk trading companies. Enterprise Investment Schemes were set up by the government to try and encourage wealthy business people to invest money into smaller companies which may be considered a higher risk.
There is the ability to take advantage of lower tax rates on Capital Gains Tax of 10% from 20% (based on current government allowances that could change) allowances for individuals disposing of a business interest, including the shares. The necessary requirements need to be met ahead of making any gift or sale.
Enterprise Management Incentive (EMI)
EMI schemes can be considered as part of Tax Efficient Investment Planning. They are share options with tax advantages. Allowing companies to reward and recruit valuable individuals whose contribution will make a significant difference to the value of the business. The relevant conditions need to be satisfied to allow for no tax being payable when the options are granted. The benefit is that the employee has the security of having a future stake in the business.