Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
You may be aware that the end of the 2021-22 tax year will arrive on 6th April 2022. Before that time, there is still opportunity for investors to boost their real returns by making smart use of tax allowances. In particular, the Enterprise Investment Scheme (EIS) offers tax relief to investors who make an acceptable claim at the appropriate time. This could help you save significantly on your capital gains tax (CGT) bill.
Below, our investment team at Bure Valley Group explains how EIS works in relation to the end of tax year, and ways investors can use this to their advantage. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
+44 160 334 0827
EIS and the tax year
The tax year (or “financial year”) runs from 6th April to 5th April the following year. With many allowances, the arrival of a new tax year means the loss of any unused allowance – which can undermine your finances, if you are not careful. For instance, with your ISA(s), you can commit up to £20,000 into your account(s) each tax year and anything inside will generate capital gains, interest and dividends – without tax. However, if you only put £10,000 into your ISAs in a given tax year, then the remaining £10,000 allowance is lost when the new year starts.
With EIS, there is more flexibility for investors. However, it is still important to plan ahead – as the passing of a tax year can still, often, involve the loss of tax-saving opportunities. With your EIS investments, there is opportunity to maximise your returns using options like 30% income tax relief. Here, you must first be issued an EIS3 form from the EIS-qualifying company you hold shares in. Then, you must include the details in the tax return you submit to HMRC. This must be done in the correct tax year, and following all other requirements.
How far back can I claim EIS tax relief?
As mentioned above, the end of a tax year does not necessarily mean you lose the chance to claim any unclaimed EIS tax relief. However, it is better to check your tax plan before the April deadline to make sure you will not lose out. With EIS – as well as other schemes like SEIS and SITR – you can claim during the tax year in which you made the investment. Or, you can claim up to 5 years after 31st January, following the tax year in which you made the investment.
So, if you made EIS investments around 5 years ago, you should consult a financial adviser about your options before the opportunity passes! Alternatively, consider claiming the relief in the 2021-22 tax year (assuming you made an EIS investment in the same year). The benefit here is that you get the tax relief sooner, which can then be put to work in other investments. However, in some cases it may be better to wait. For instance, if you expect your income to significantly rise in the next 5 years – e.g. pushing you into a higher tax bracket – then claiming the 30% Income Tax relief at that time could result in a bigger tax saving.
Other reliefs to consider before 2022-23
Optimising your EIS investments before April 5th 2022 is a good idea, but there are likely other schemes you are using which can also be improved to your advantage. We have mentioned your ISA already. However, what about your pension? In 2021-22, you can put up to £40,000 into your pension pot(s) each tax year – or, up to 100% of your earnings (whichever is lower). Here, your contributions can get a nice “boost” from the government, which “tops them up” via tax relief – according to your income tax bracket.
For instance, a Basic Rate taxpayer gets 20% tax relief on their contributions – meaning, it only “costs” them 80p to put £1 into their pension. For a Higher Rate taxpayer, the relief is 40% (so the “cost” is only 60p). Bear in mind, however, that there is a taper for this generous tax relief, which you need to factor into your retirement planning. In 2021-22, for every £2 of “adjusted income” over £240,000, your annual allowance is reduced by £1. As such, if your income is very high then you may need to explore other tax-efficient vehicles alongside your pension.
Here, options may include EIS, SEIS and VCTs (venture capital trusts). You could also consider AIM-listed shares, which can receive Business Relief and so receive 50% or 100% tax relief on inheritance tax (IHT). Here, again, we suggest speaking with a financial adviser to make sure your asset base holds together in a fully tax-efficient manner – maximizing your real returns and keeping you on track towards your goals. If you feel that EIS investments could be good options for your portfolio, then we have a range of projects in our network here at Bure Valley Group which we would love to introduce you to.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827