Individuals considering on how to invest money in the UK should consider investments with tax relief. Depending on the tax position of the investor, such investments may result in higher returns on investment and a lower tax bill.
Individual savings accounts
One of the best ways to invest money in the UK is to look at the possibiities for saving with tax relief. One of the most straightforward ways to invest money is to open an individual savings account (ISA). An investor may contribute up to £10,680 per annum (for 2011/12) of which £5,340 may be contributed to a cash ISA with the rest going to a stocks and shares ISA if the investor chooses. The ISA account may earn interest and capital gains tax free.
Venture capital trusts
More risky investment ideas that may offer tax relief are investments in venture capital trusts (VCTs) which allow the investor to deduct 30% of the investment from the income tax on other incomes. Tax relief is available on investments in a VCT for up to £200,000. The venture capital trust itself is exempt from tax on income and capital gains, but invests in small companies that may be risky investments. Similarly, the Enterprise Investment Scheme (EIS) enables investors to obtain tax relief of 30% (from 2011/12) on investments in small trading companies. The investor may also roll over capital gains on other assets against the investment in EIS shares.
Real estate investment trusts
Investors who feel that they could make money investing in property could consider buying shares in a real estate investment trust (REIT). This is a company where 75% of whose assets are represented by investment property and at least, 75% of whose earnings are property income. The company's income from property and capital gains from the sale of investment property are exempt from UK corporation tax. At least, 90% of the REIT's property income must be distributed to the shareholders, but investors should note that this distributed income is subject to the deduction of income tax.
If money is not required immediately, but it is being saved for retirement, one of the best ways to save money is through a pension fund. Individuals who are employed may have the chance to join an occupational pension scheme, while those who are self-employed may consider contributing to a pension fund with a financial institution. A registered pension scheme is exempt from tax on its income and capital gains, while income tax relief is available to the investor. When the individual retires, part of the pension may be taken as a tax-free lump sum, while the rest is invested in an annuity.