Where To Invest If Your Pension Is Maxed Out

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It’s the time of year when many wealthy retirement savers have put as much cash as they can into their pension and need somewhere else to invest.

With annual pension contribution levels pegged at between £10,000 and £40,000 depending on the saver’s level of earnings, other options offering tax relief and high returns are attractive to investors.

Step up the Seed Enterprise Investment Scheme (SEIS).

Introduced by former Chancellor George Osborne in 2012, SEIS has seen around 2,185 companies raise funding of £168 million.

How SEIS works

Investors can stake up to £100,000 in SEIS every tax year – and in return receive generous tax breaks:

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  • Income tax relief as a 50% refund of tax paid – so a maximum £100,000 investment attracts £50,000 income tax relief. Watch out – you must have paid the tax to win a refund. SEIS cannot generate a tax refund exceeding the amount of income tax paid
  • Capital gains tax (CGT) reinvestment relief at 50% – If the £100,000 staked came from selling other assets and the money was reinvested in SEIS, the CGT relief is a £50,000 exempt gain, which saves between £9,000 and £14000.

This is a good way for buy to let landlords to reduce their CGT bills when selling rental property.

  • Investors pay no CGT on any gains in SEIS share prices once they have held the shares for three years
  • Loss relief should the SEIS start-up fail – for a £100,000 investment, the income tax relief has already offset £50,000, the remaining £50,000 is offset against tax due leading to a saving of £22,500 for a 45% additional rate taxpayer
  • 100% Inheritance Tax relief which comes into play if the investor who has passed away has held the SEIS shares for no less than two years and retains them at death.

Alternative investments with tax breaks

For wealthy investors who exhaust their ISA, pension and SEIS reliefs in a tax year, the next step is to look at the Enterprise Investment Scheme, which offers reliefs along the same lines as SEIS but at 30% instead of 50% for investments of up to £1 million.

Other alternative tax-incentivised investments include Venture Capital Trusts (VCT) and Social Investment Tax Relief (SITR).

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