Wealthy investors are increasingly turning to start-up companies to mitigate their tax burdens, particularly as a potential capital gains tax (CGT) increase looms in the upcoming budget.
Investment in seed enterprise investment schemes (SEISs) surged by 250% between July 4 and September 16 this year, according to Wealth Club, with savers hoping to reduce their CGT liabilities by up to 50%.
The spike in SEIS investments coincides with government efforts to stimulate economic growth by encouraging investment in small British businesses. SEISs allow investors to put up to £200,000 annually into early-stage firms, providing significant tax advantages, including 50% income tax relief and exemption from CGT on any gains made from the investment. Crucially, they also offer 50% relief on CGT from the sale of other assets, such as buy-to-let properties, when reinvested in qualifying SEIS companies.
With CGT reform expected in the budget, investors are seizing the opportunity to benefit from the extended SEIS tax breaks, which were recently prolonged until 2035. A higher-rate taxpayer who reinvests a £100,000 gain into an SEIS fund could reduce their CGT bill from £24,000 to £12,000, while also securing £50,000 in income tax relief.
Nicholas Hyett of Wealth Club points out that high-net-worth individuals are increasingly using SEISs to shelter future gains from tax, given the likelihood of changes to CGT, inheritance tax, and pensions. “It’s no wonder wealthy investors are taking advantage of schemes that provide upfront tax relief while protecting future gains,” Hyett says.
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