Savings and investment – making the most of your money
10 Contribute up to £9,000 into your child’s Junior ISA.
The fund builds up free of tax on investment income and capital gains until your child reaches 18, when the funds can be either withdrawn or rolled over into an adult ISA. Relatives and friends can also contribute to your child’s Junior ISA, as long as the £9,000 limit for 2024/25 is not breached.
11 Make the best use of tax-free savings and dividend allowances.
For 2024/25, savings income of up to £1,000 is tax exempt for basic rate taxpayers, with a £500 exemption for higher rate taxpayers. The tax-free dividend allowance of £500 is available for all taxpayers. Married couples and civil partners can save tax by ensuring that each person has enough of the right type of income to make use of these tax-free allowances.
12 Take advantage of the individual savings account (ISA) investment limit and generate tax-free income and capital gains.
The maximum amount that can be invested in ISAs is £20,000 for 2024/25. You can put the whole amount into a cash ISA, a stocks and shares ISA, an Innovative Finance ISA, or any combination of the three as desired. It is now possible to open more than one of each type of ISA each tax year. Transferring funds into an ISA early in the tax year will maximise the amount of tax-free income arising in the year. ISAs can offer long-term tax advantages as an alternative to pension savings.
EXAMPLE
Jerry is an additional rate taxpayer, and has £120,000 invested in a stocks and shares ISA. He uses his dividend allowance and CGT exempt amount against non-ISA income and gains. During 2024/25, the ISA produces dividend income of £4,000 and capital gains of £8,000. By investing in an ISA, Jerry has saved income tax of £1,574 (£4,000 at 39.35%) and CGT of £1,600 (£8,000 at 20%) for 2024/25.
13 Plan your capital gains to make best use of any capital losses.
If you realise capital gains and losses in the same tax year, the losses are offset against the gains before the CGT exempt amount (£3,000 in 2024/25) is deducted. Capital losses will be wasted if gains would otherwise be covered by your exempt amount. Consider postponing a sale which will generate a loss until the following tax year, or alternatively realising more gains in the current year.
14 Generate a 50% income tax credit on an investment of up to £200,000 by investing through the Seed Enterprise Investment Scheme (SEIS).
When you make a capital gain and reinvest that amount in SEIS shares, it can qualify for a maximum 50% CGT reduction on gains of up to £200,000. If the gain was taxable at 24% the overall tax relief is 62% (50% income tax plus half of 24%). Also, any capital gains arising on the SEIS shares are exempt from tax if the shares are held for at least three years. Beware that the income tax credit is clawed back if the shares are held for less than three years. Investing in small companies can be very risky, so take independent financial advice.
15 Obtain a 30% income tax credit by subscribing for shares in a Venture Capital Trust (VCT) or an Enterprise Investment Scheme (EIS).
In 2024/25, the maximum subscription in VCT shares is £200,000. The shares are exempt from CGT when they are sold. A subscription in EIS shares costing up to £2 million (investments in excess of £1 million must be made in knowledge-intensive companies) qualifies for the income tax credit. In addition, you can defer tax on your capital gains by reinvesting an unlimited amount of gains in EIS shares. VCT and EIS shares can be high- risk investments and you must hold VCT shares for at least five years and EIS shares for three years in order to retain your income tax credit.
TIP
Invest in a small trading company under the Seed Enterprise Investment Scheme (SEIS) and gain a 50% income tax credit on an investment of up to £200,000.
This publication is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The Financial Conduct Authority (FCA) does not regulate tax advice, so it is outside the investment protection rules of the Financial Services and Markets Act and the Financial Services Compensation Scheme. This publication represents our understanding of the Finance
(No 2) Bill 2024, the Budget (Scotland) Act 2024 and law and HM Revenue & Customs practice as at 1 May 2024. All rights reserved.