Elson Geaves Accountancy | Savings & Investment
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Savings & Investment

Savings and Investment

Individual Savings Accounts (ISAs)

 

The Chancellor decided to increase the attractiveness and flexibility of ISAs with effect from 1 July 2014:

 

  • ISAs will be reformed into a simpler product, the ‘New ISA’ or NISA;
  • the previously announced annual investment limit of £11,880 will be increased to £15,000;
  • the Junior ISA limit of £3,840 will be increased to £4,000;
  • the different limits for cash ISAs and stocks and shares ISAs will be removed – it will be possible to put the whole amount into cash;
  • existing ISA funds will be brought within the new rules, so it will be possible for existing stocks and shares ISAs to be reinvested into cash.

 

Anyone wishing to take advantage of this new flexibility should consider taking investment advice before moving their funds.

 

Seed Enterprise Investment Scheme (SEIS)

 

SEIS is a generous relief that was introduced in 2012/13. A subscriber for shares in a small trading company, which has started a new trade in the last two years, can enjoy a 50% income tax rebate on up to £100,000 invested. If capital gains of up to the same amount are realised in 2014/15 and invested in a SEIS company, half the gains will be exempted. In effect, this will halve the CGT rate on such gains. The potential initial relief for an investment is therefore up to 64% of the cost – 50% in income tax and 14% in CGT. These reliefs will become permanent provided a number of conditions are satisfied, but may be lost if the shares are sold or the company is liquidated in a short time.

 

The SEIS was originally intended to run until April 2017, with the CGT relief only available for the first two years. The Chancellor has announced that this scheme has been a success and is to be made ‘permanent’. The 50% income tax relief and exemption for half of reinvested gains will therefore be available for investments for the foreseeable future.

 

Starting rate band for 2015/16

 

The ‘starting rate band’ complicates the tax affairs of many pensioners – those who have a small amount of non-savings income, and whose savings income takes them above the personal allowance. They are charged at only 10% (the ‘starting rate’) on savings income of up to £2,880 in 2014/15. The Chancellor has announced that this will change to a zero rate for up to £5,000 of savings income in 2015/16. Non-savings income will not be eligible for the zero rate, but it uses up the band. This is a welcome tax relief, but it is just as complicated as the present rule.

 

Venture Capital Trusts

 

Investors who subscribe for shares in Venture Capital Trusts enjoy a 30% rebate of the cost against their income tax. The Budget includes measures to prevent a VCT from returning share capital to investors within three years of the end of the accounting period in which the VCT issues the shares. This appears to have been used to exploit the relief, rather than encouraging investment in high growth small and medium-sized companies as intended. Distributions made from realised profits will not be affected.