Individual savings accounts (ISAs)
You can invest up to £3,600 in a cash ISA and up to £7,200 in a stocks and shares ISA in each tax year. The total investment is limited to £7,200, so if you invest, say, £2,000 in a cash ISA, you can only invest £5,200 in a stock and shares ISA that year.
ISAs are free of UK tax on investment income and capital gains, although, as with other investments, it is not possible to reclaim the tax credits on UK dividends. There is a choice of investments, including equities and fixed interest securities.
Remember that 16 and 17 year olds can open a cash ISA, so you may wish to provide funds for young relatives to invest. However, if you give money to your own children, the interest must not exceed £100 a year, otherwise you will pay tax on it.
Enterprise investment scheme (EIS)
The EIS gives tax relief for investing in new shares in relatively small qualifying trading companies that are not listed on any Stock Exchange.
- Income tax relief is given at 20% on up to £500,000 invested in 2008/09.
- Gains on those shares escape CGT after three years.
- It is possible to defer CGT on a gain of any size, on the disposal of any asset, by reinvesting in shares that qualify under the EIS. An EIS investment can be used to defer gains made up to three years earlier.
Venture capital trusts (VCTs)
You can obtain income tax relief of 30% by subscribing up to £200,000 for shares in VCTs in 2008/09. Gains are generally exempt from CGT. VCTs are investment trusts that invest in a range of very small trading companies.
It is important to remember that EIS shares and VCTs are high-risk investments and so may be difficult to sell.
You should bear in mind that the value of your investment can go down as well as up and past performance is not a reliable indicator of future performance.
Useful link: www.ft.com – financial and market analysis.
Planning point: The end of the tax year is the deadline for investing in ISAs, EISs and VCTs. In 2009, 5 April falls on a Sunday so in practice you have only until 3 April to make your investment.Last Updated
