Are ISAs actually worth it?
With no income tax or capital gains tax to pay on returns, the Individual Savings Account (ISA) revolutionised tax efficient investment when introduced in April 1999. Roll the clock forward 15 years and another ‘new dawn’ of a similar magnitude has hit the financial services market, thanks to George Osborne’s March 2014 budget announcement declaring that peer-to-peer lending loans would be categorised in the same bracket as the tax-friendly ISA and that the Seed Enterprise Investment Scheme (SEIS) would remain available permanently.
SEIS tax incentives
With the government under pressure to kickstart a stuttering economy and to encourage more entrepreneurial startups, there are huge tax incentives, up to an impressive 50%, that accompany investments into SEIS-eligible companies (for more on the Seed Enterprise Investment Scheme and how it works, click here).
This is fabulous news, specifically for investors who are tired of paltry interest rate returns on their ISAs and who are willing to take on a bit more risk. It’s a welcome call for the UK’s promising startup companies desperate for initial capital funding that the risk-averse high-street banks are increasingly reluctant to provide.
If you’ve been choosing to invest in an ISA via a high-street bank and using your allowance since 1999, and don’t wish to deviate from this investment strategy, that’s fine… there is actually no need to pick an allegiance to a conventional ISA product versus an SEIS: you can invest in both in the same tax year.
ISA interest rates remain low
The traditional cash or stocks and shares ISA product has been a low-risk, low-return investment option since inception but, given that the Bank of England’s base rate hasn’t risen above 0.5% since 5 March 2009, the ISA’s returns, despite being tax free, are frustratingly below par. In fact, there’s probably a greater likelihood that your money could ‘work harder’ in a current account as opposed to an ISA in certain quarters.
SEIS and the sophisticated investor
Step forward the Seed Enterprise Investment Scheme for the sophisticated, savvy investor. As well as helping to supercharge growth in UK startups, the potential returns are huge; can you imagine owning equity in the next Twitter or Skype? While investing in startups might be a longer-term investment for obvious reasons and startups are notorious for encountering difficulties in their first few years of trading, backing a winner could change your whole financial situation. There is also leniency where loss-making investments (i.e. startups that fail) are concerned – so keen isnthe current government to aid and fuel growth in the SME sector, that loss relief is available by offsetting your losses against other tax liabilities in the tax year.
What’s truly remarkable with an SEIS investment is the 50% rate of tax relief that effectively comes off the end of year tax bill when an SEIS-eligible investment has been made (up to £100,000 invested) and offers longer-term investors the added comfort of knowing the sum will not be subject to any inheritance tax either.
SEIS and equity crowdfunding
Conveniently for SyndicateRoom investors, our deals are highlighted as SEIS eligible on the ‘Available Investments’ page and all associated deals are backed by experienced business angels, who have all invested their own funds into our featured companies. The equity crowdfunding scene is now hugely popular, and becoming more and more mainstream, rivalling high-street banks in terms of helping to stimulate growth in the UK economy and helping savvy investors spice up their portfolios.
Here at SyndicateRoom we’re helping to spearhead this growth in equity-based crowdfunding and have been granted approval by the Financial Conduct Authority (despite this not currently being a legal requirement for the crowdfunding industry) to ensure we give our investors and entrepreneurs confidence and reassurance in using our innovative platform. Our approval was granted within two months when the process usually takes up to 12 months, proving our web platform, legal processes, and back office operating methods are finely tuned and fully ratified in the eyes of the FCA. (We’re also listed on the Bank of England’s Financial Services Register – look up Firm No. 613021 here.)
Why not try spicing up your ISA ‘pot’ and researching a few of our investment opportunities? Sign up for a SyndicateRoom account today and start investing alongside some of the UK’s most successful business angels in the UK’s most promising young startups.
Risk warning: tax relief depends on an individual’s circumstances and may change in the future. In addition, the availability of tax relief depends on the company invested in maintaining its qualifying status.