Tax year end to-do list

In the last tax year, the Government raised over £1 trillion in taxes, equivalent to around 40% of GDP – a level not seen since the early 1980s. 

Frozen thresholds have pulled millions into higher income tax brackets. 

Over a million more people will have to pay tax on dividends once the dividend tax allowance is halved again – to a mere £500 a year – in the new tax year (6 April). 

The number of investors forced to pay capital gains tax is on course to treble, due to the two consecutive cuts of the capital gains tax allowance, first to £6,000 then £3,000 from 6 April.

Tax cuts might be announced in the upcoming Spring Budget (6 March) – but what about the current tax year?

Here are five things that could help experienced investors mitigate the effects and save tax this tax year – or, in some cases, claim back tax you already paid last year – provided you meet certain imminent deadlines to invest.

Important: tax rules can change and benefits depend on circumstances.

1. Invest in a VCT – save up to 30% income tax and get tax-free dividends

2. Invest in EIS – up to 30% income tax relief

3. Invest in SEIS – save up to 50% income tax and capital gains tax

4. Invest in an AIM IHT ISA – your subscription could potentially be IHT-free after two years

5. Make the most of your ISA and SIPP allowances – invest in our exclusive portfolios, managed for you by our investment experts.

When you invest in a VCT, you may claim up to 30% income tax relief for the tax year in which you make the investment. You can claim back tax you’ve already paid over the year. Alternatively, if investing early in a tax year, you could ask HMRC to change your tax code and have your subsequent income tax reduced each month under PAYE.

Furthermore, any dividends paid out from VCTs are tax-free – so won't use up your dividend allowance, which is currently £1,000, to be reduced to £500 on 6 April. 

The sooner you invest in a VCT, the sooner you may start benefitting from any dividends it may pay, but please note VCT dividends are variable and not guaranteed.

When you invest in EIS, you can offset up to 30% income tax relief against your current year’s tax bill – or the previous year’s if you use carry back. Furthermore, any growth is tax free and the investment should be IHT free after two years. You may also defer tax on capital gains made elsewhere, for as long as that gain is invested in an EIS-qualifying investment. If things don’t work out as planned, you can use loss relief to offset losses against income.

What is EIS/SEIS carry back?

EIS and SEIS investments offer a “carry back” facility. You can elect for all or part of your EIS/SEIS shares acquired in one tax year to be treated as though they had been acquired in the previous tax year.

This gives investors the option to offset the tax relief against income tax from the previous year. 

You can only do this if you have sufficient EIS or SEIS allowance in the tax year to which you’re carrying back, as long as you invest that gain in an EIS-qualifying investment. If things don’t work out as planned, you can use loss relief to offset losses against income.

There’s still time to apply EIS relief to your 2022/23 income tax bill

Some of our featured EIS still have deadlines targeting deployment within this tax year – this means when you invest you should be able to claim up to 30% income tax relief for the current tax year or carry back to 2022/23 – not guaranteed. Tax rules can change and benefits depend on circumstances. Please be aware of the deadlines – you can read more and apply online.

The most generous tax reliefs are reserved for investing in the youngest – and therefore highest-risk – companies, under SEIS. 

These include up to 50% income tax relief, with the option to carry back to the previous year, and up to 50% capital gains tax relief. So, on a £100,000 investment for instance, you could potentially claim back up to a total of £64,000. 

As with EIS, any growth is tax free, the investment should also be IHT-free after two years and you could claim loss relief if things don’t go to plan. Bear in mind tax rules can change and benefits depend on circumstances.

There’s still time to apply SEIS relief to your 2022/23 income tax bill

There are still some SEIS funds targeting deployment within this tax year – this means when you invest you should be able to claim up to 50% income tax relief for the current tax year or carry back to 2022/23 – not guaranteed. Tax rules can change and benefits depend on circumstances. Please be aware of the deadlines – you can read more and apply online

ISAs are not normally IHT free. However, when you invest in an AIM ISA, your money could potentially be IHT-free after two years, provided you still hold the investment on death, in addition to the usual ISA benefits of tax-free income and growth.

You can now invest your ISA or SIPP in long-term growth opportunities selected and managed for you: our Quality Shares Portfolio and Wealth Club Portfolio Service.

You can invest new money or transfer existing investments. Note: these discretionary managed portfolios are long-term investments which can fall as well as rise in value and returns are not guaranteed.