Business owners can take advantage of tax relief on a smaller company investment
What can you say to a client who has money tied up in their business but knows they can’t take it as a dividend without paying tax of up to 25% on it?
A smart solution to their dilemma could be to invest profits from the business in smaller UK companies through either a Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS). The government rewards investors for taking the risks involved in backing small companies by offering a range of attractive tax benefits.
These include the 30% upfront tax relief, which could be more than enough to take care of the extra tax bill.
– If they take a £50,000 dividend from their business, it could create a £12,500 tax liability, at a rate of 25%.
– The 30% tax relief on the VCTs or EIS will come to £15,000, leaving a surplus of £2,500 for your client to invest or spend.
Risk profiles on these types of investments have changed over the years; the investment risk can be quantified, the tax risk is minimal!
Paul Finch – Finch Financial Services LLP