Our top 5 UK tax efficient savings & investments 

1. Premium Bonds

Premium bonds are administered/issued by NS&I a government savings bank.  They offer a risk free option if you are looking to save a minimum of £25 up to a maximum of £50,000 in premium bonds.  You can purchase premium bonds up to these limits and each month you bonds are entered into a prize draw offering you the chance to win prizes of between £25 to up to £1m with no risk of losing your initial savings.  Furthermore, any prizes paid out are tax free and do not need to be reported to HMRC.

2. Individual Savings Accounts (ISAs)

There are 4 different types of ISAs which are outlined below.  You can make total contributions of up to £20,000 per tax year into one ISA or this amount can be split between the different types of ISAs:-

• Cash ISAs – Similar to a savings account but any interest received is not taxable.
• Stocks and shares ISAs – account used for investing in stocks and shares in companies, government or corporate bonds. Any gains arising on the sale of the stocks and shares will not be subject to capital gains tax.  However, there is a risk you may lose part of your capital investment if for example the shares drop in value.
• Innovative finance ISAs – like a cash ISA but the savings in this account are used for peer to peer lending. The borrowers would then pay interest on the loans they receive and this interest is not taxable.  This type of ISA is however riskier than a cash ISA as there is a risk that borrowers may default on their loans.
• Lifetime ISAs – Similar to a cash ISA but you can only contribute up to £4,000 and the government will add an additional 25% i.e. up to £1,000 to your ISA. You can only open this ISA when you are less than 40 years old and can make contributions before your 50^th birthday 

3. Pension Schemes

With the changes announced in the Spring Budget 2023, individuals can contribute between £4,000 and up to £60,000 (“annual allowance) a year into a qualifying pension scheme.  This can either be an employer scheme or a Self Invested Personal Pension (SIPP).  Any contributions up to the eligible limit would receive tax relief at the relevant tax rates.  Please however note if you contribute into an employer funded pension scheme, both employer and employee contributions will need to be taken into account when calculating the annual allowance which has been utilised.  However, no tax relief will be available on employer pension contributions and you may potentially get taxed on these contributions if you exceed your annual allowance.

4. Seed Enterprise Investment Schemes (SEIS)

Companies which meet certain conditions in relation to their trade and size can apply to HMRC for Advance Approval under the SEIS.  As an individual you can therefore buy shares in a SEIS approved company (up to £100,000) and obtain tax relief on 50% of the amount invested.  For example, if your marginal tax rate is 45% and you invest £1,000 into a qualifying company, you will receive a tax refund of £225 from HMRC when you file your tax return.  On sale of the shares, you would only have to pay capital gains tax on 50% of the investment up to £500. However, there is a risk that you may lose your initial investment if for example the company you invested in goes into liquidation.

5. Enterprise Investment Scheme (EIS)

Operates in a similar way to the SEIS but individuals can invest up to £1m in a qualifying company and obtain tax relief on up to 30% of the investment.  For example, if your marginal tax rate is 45% and you invest £1,000 into a qualifying company, you will receive a tax refund of £130 from HMRC.  On eventual sale of the shares, you would not have to pay capital gains tax on the gains arising.    However, similar to SEIS, there is a risk that you may lose your initial investment if for example the company you invested in goes into liquidation.

Next Steps

If you are looking to invest in the above areas and need tax advice, assistance with claiming back any tax reliefs / repayments available or are a company looking to get approved for the SEIS or EIS schemes, then please get in touch with us at contactus@e-taxconsulting.com or via the contact us form on the website.  However, please note, we can only provide tax advice and we cannot provide any financial / investment advice.