Take advantage of the individual savings account (ISA) investment limit and generate tax-free income and capital gains The maximum amount that can be invested in ISAs is £20,000 for 2023/24. You can put the whole amount into a cash ISA, a stocks and shares ISA, an Innovative Finance ISA, or any combination of the three as desired. Transferring funds into an ISA early in the tax year will maximise the amount of tax-free income arising in the year. ISAs can offer long-term tax advantages as an alternative to pension savings. Plan your capital gains to make best use of any capital losses If you realise capital gains and losses in the same tax year, the losses are offset against the gains before the CGT exempt amount (£6,000 in 2023/24) is deducted. Capital losses will be wasted if gains would otherwise be covered by your exempt amount. Consider postponing a sale which will generate a loss until the following tax year, or alternatively realising more gains in the current year. Generate a 50% income tax credit on an investment of up to £200,000 by investing through the Seed Enterprise Investment Scheme (SEIS) When you make a capital gain and reinvest that amount in SEIS shares, it can qualify for a maximum 50% CGT reduction on gains of up to £200,000. If the gain was taxable at 28% the overall tax relief is 64% (50% income tax plus half of 28%). Also, any capital gains arising on the SEIS shares are exempt from tax if the shares are held for at least three years. Beware that the income tax credit is clawed back if the shares are held for less than three years. Investing in small companies can be very risky, so take independent financial advice. Obtain a 30% income tax credit by subscribing for shares in a Venture Capital Trust (VCT) or an Enterprise Investment Scheme (EIS) In 2023/24, the maximum subscription in VCT shares is £200,000. The shares are exempt from CGT when they are sold. A subscription in EIS shares costing up to £2 million (investments in excess of £1 million must be made in knowledge-intensive companies) qualifies for the income tax credit. In addition, you can defer tax on your capital gains by reinvesting an unlimited amount of gains in EIS shares. VCT and EIS shares can be high risk investments and you must hold VCT shares for at least five years and EIS shares for three years in order to retain your income tax credit. Your property –making the most of bricks andmortar Let rooms in your own home to one or more lodgers Rent-a-room relief allows up to £7,500 of rent per property to be received tax free per year. The rooms must be let as residential accommodation in the home you live in, and no expenses can be claimed. If the gross rent is higher than £7,500, you need to declare the income on your tax return. However, you can then claim a deduction of £7,500 instead of the actual expenses incurred. Payments received under the Homes for Ukraine Scheme are not taxable and do not count towards the rent-a-room relief cap. When you occupy a second home tell HMRC which of your properties should be treated as your main home for tax purposes A property that has always been your main home is free of CGT on sale or disposal. Any other property that you used as your main home for a period will be exempt from CGT for the time you lived there, and for any period for which you elected for it to be your main home. If a property has been your nominated main home at any time, the gain for the last nine months of ownership is exempt from CGT, even if you do KEY GUIDE | April 2019 | Tax Planning Tips 5 TAX PLANNING TIPS | May 2023 Tip Invest in a small trading company under the Seed Enterprise Investment Scheme (SEIS) and gain a 50% income tax credit on an investment of up to £200,000. EXAMPLE Jerry is an additional rate taxpayer, and has £120,000 invested in a stocks and shares ISA. He uses his dividend allowance and CGT exempt amount against non-ISA income and gains. During 2023/24, the ISA produces dividend income of £4,000 and capital gains of £8,000. By investing in an ISA, Jerry has saved income tax of £1,574 (£4,000 at 39.35%) and CGT of £1,600 (£8,000 at 20%) for 2023/24.
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