Personal Allowance and Capital Gains Tax (CGT) exemption
- The personal allowance is £12,570 so income up to this amount is not liable for income tax. If any of your family have income that is below the £12,750 limit, you can use the personal allowance by, for example, paying them dividends above the dividend allowance or making trust income distributions.
- The CGT (Capital Gains Tax) annual exemption allows up to £12,300 of gains to be tax free.
Pension contributions
- Pension contributions can be extremely tax efficient if your pension fund does not exceed your lifetime allowance, which is currently £1,073,100.
- The maximum annual pension contribution allowance is £40,000, but you can carry forward unused allowances for up to three years.
Inheritance tax
- Everyone in the 2021-22 tax year has a £3,000 annual inheritance tax gift exemption which can be carried forward one year. You can use the inheritance tax exemption to make gifts to family and friends of up to £6,000 every other year. Generally, if a gift is made more than seven years before your death to an individual, there will be no tax payable.
Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS)
- If HMRC’s approval is obtained, tax relief is given for certain qualifying investments in growing companies.
- Enterprise Investment Schemes (EIS) aimed at medium sized start-ups allow individuals to receive a 30% tax break and Seed Enterprise Investment Schemes (SEIS) receive a 50% tax break on the amount invested.
- Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) are exempt from Capital Gains Tax on gains when the shares are sold. These are very important reliefs, if you meet the requirements, as CGT is charged at 20%.
- If you do not meet the requirements for a Enterprise Investment Scheme (EIS) and Seed Enterprise Schemes (SEIS) you might alternatively be able to claim investors’ relief. Capital Gains Tax (CGT) is charged at 10% on gains up to a lifetime limit of £10m.
- Amongst other requirements, to claim the relief, the shares disposed of must be unlisted ordinary shares issued on or after 17 March 2016. You must have subscribed and paid for them fully in cash at the time of issue and they must have been held continuously for a minimum of 3 years and neither you nor a person connected to you must be a relevant employee.
Charitable donations
- If you are a higher rate tax payer, charities can receive tax relief by extending your individual’s basic rate tax band. For example, a 40% tax payer could donate £100 to charity, of which the charity gets £125 and the tax payer can claim back £25. This area of tax is very complex and advice must be taken.
