Ask the Experts: What investments can I pick that will be exempt from capital gains tax?

Published by David Wesley-Yates on 26 May 2017.
Last updated on 04 July 2017

Q

I draw my income entirely from my investments, but I’m wondering what investment options there are that do not attract capital gains tax (CGT). I use my entire individual savings account (Isa) allowance each year and my annual CGT too. Any suggestions for a 61 year old?

From:
SP/Huddersfield

A

Most investments are subject to CGT if they appreciate in value and exceed your tax-free allowance of £11,300 (£5,650 for trusts). However, there are a few exceptions that you may want to consider.

Enterprise Investment Schemes (EIS) offer CGT relief, which in certain circumstances can mean you don’t have to pay CGT at all.

An EIS is a scheme set up to encourage investment into small, unquoted trading companies and give investors tax breaks to compensate for taking risk. Because the companies in the scheme are not listed on a stock exchange, they often carry a high risk, so the tax relief is intended to offer some compensation.

There are two types of CGT relief available within an EIS. Firstly, disposal relief, where shares in an EIS company are sold and the sale is free of CGT. Secondly, you can use deferral relief, which means you defer paying CGT on gains made in the past three years or during the current tax year, as long as the gains are reinvested in a qualifying EIS.

Once you have held an EIS investment for three years, all gains made on the EIS investment are free from CGT.

Gilt-edged securities, in other words, certain types of treasury bonds issued by the UK government, are also free of CGT.

Moneywise says: Consider Premium Bonds from NS&I too. They’re a safe home for your money and offer the chance to win monthly tax-free prizes, including a £1 million jackpot. However, they’re not suitable for investors who want a regular income or guaranteed returns. If you don’t win prizes, there is a risk of inflation eroding the value of your savings. You can invest up to £50,000. For more information visit: Nsandi.com/premiumbonds or call 08085 007 007.

This article was written in response to a reader’s question. If you have a financial or work/career question that has left you scratching your head ask our panel of experts who will aim to shine some light on the matter.

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