Page 7 - Budget Newsletter 2021

investment schemes (SEISs) on companies where there is a real risk to the capital being invested and excluded
companies and arrangements intended to provide ‘capital preservation’.

Interest in VCTs, EISs and SEISs has grown as more aggressive forms of tax planning have come under sustained (and
largely successful) HMRC attack and pension opportunities have been further constrained. In 2020/21, VCT fundraising
amounted to £685m. Most of the long-established VCTs started their 2021/22 capital raising ahead of the Budget.

PLANNING POINT

VCT fundraising could receive a further boost with the 1.25% increase in dividend tax rates. This is because
dividends from qualifying VCT investments are tax free. The best VCT offers can sell out quickly – even before
you read about them in the weekend press. With many offers already open, do be sure you let us know as soon
as possible if you want to make any VCT investment in this tax year.

Pay Later, Not Now?

For higher and additional rate taxpayers, there can be a case for considering the options for tax deferral, once the
decision on which sector to invest in has been made. The potential advantages and disadvantages of tax deferral
include:

• What would be going to the Treasury instead remains invested, enhancing potential returns.

• There is the possibility that tax rates will be lower when the investment is realised. The opposite risk is that the
50% top tax rate could reappear following a change of Government. However, your marginal tax rate could rise
anyway because of the impact of tax bands and allowances being frozen until 5 April 2026.

• Some tax liabilities might disappear completely. Under current rules there is generally no CGT on death, although
several voices, including the OTS, have suggested this relief should be withdrawn.

• The investor may change their country of residence, giving rise to a lower tax rate or possible tax savings during
the period of transition between the old and new homes.

There is a variety of tax-deferral options available but, as ever, advice is needed in making the ‘customer’ a client of
HMRC.

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