Osborne offers tax relief for enterprising investors

Wealthy investors will be able to claim extra tax benefits for investing in start-ups but there was no solace for savers in the Chancellor’s autumn statement yesterday.

Calls for a boost for savers hit hard by inflation and low interest rates over the last three years fell on deaf ears, including suggestions of an extension to individual savings account (Isa) allowances.

Ros Altmann, director-general of Saga, said: “Increasing the Isa allowances would at least help [savers] earn their meagre levels of interest without being taxed as well. Negative interest rates are bad enough, without adding the tax insult to savers’ injury.”

It was also revealed that the annual capital gains tax (CGT) limit will be frozen at the current level of £10,600 in the next financial year. But higher-rate taxpayers’ fears of a cut in the relief paid on pension contributions proved unfounded, while savers willing to risk investing in business start-ups have been given fresh tax incentives. From next April those investing up to £100,000 in a start-up will be able to claim income tax relief of 50 per cent and qualify for a one-year waiver of CGT, under the new Seed Enterprise Investment Scheme (SEIS), giving the potential for tax relief of 78 per cent in the first year.

Stephen Herring, senior tax partner at BDO, said some investors would be attracted by the potential tax benefits. “Nevertheless, in our view, the tax relief, however generous, should not be the overriding factor in making a financial investment decision,” he said.

Adrian Lowcock, senior investment adviser at Bestinvest, said the cumulative £150,000 limit on investments in one company could make SEIS funds especially risky. “For example, venture capital trusts (VCTs) may spend over £100,000 on doing due diligence on an investment before making it; with SEIS restricting investment to £150,000 due diligence may be minimal, making SEIS very risky indeed.”

But Simon Blowey, divisional director at Brewin Dolphin, said many investors would be tempted. He said: “It could well be that an EIS becomes the vehicle of choice in the next tax year, for all types of investor, including the elderly looking to mitigate inheritance tax and those preferring not to direct funds into pensions.”