Investing is an activity that can change your entire outlook on life. Beyond the incredible amounts you can make, investing can give you a sense of independence and doing things your way.
Investors like you in the UK can benefit from further perks in the form of government incentives. Are you ready to learn how to win and achieve more as a UK-based retail investor? Let’s dive into it.
Financial Rewards & Cashback Incentives for Retail Investors
General Tax Breaks
There are a handful of ways you can invest as a UK-based trader to maximise your tax benefits. The first and most crucial step is determining what financial instruments, companies, industries, and locations can take advantage of the tax incentives.
It might not make much sense to invest in a meme coin with the hope of getting tax breaks from the UK government.
One of the fastest-growing ways investors make money and access tax-related benefits is through spread betting. Spread betting predicts an asset’s price direction; you can decide to back your chosen asset to gain or lose value from when you invest in it.
The exciting part about spread betting is that you do not need to own any assets to trade on them. It does not require taking ownership of an asset, making it an excellent way for investors to make some money without significant capital.
A spread betting provider offers two quote prices, an ask and a bid, then investors bet whether the price of the asset in question will be higher than the ask or lower than the bid. Learning if your favoured financial instrument or asset makes you eligible for tax breaks before investing is advisable.
Enterprise Investment Scheme (EIS) Tax Relief
EIS is a UK government initiative to encourage investments in small or medium-sized companies that are not quoted on public exchanges. The scheme is ideal for new business initiatives, but is not limited to newly formed enterprises.
Investors often decide to put their money into large companies with proven track records like Apple, BP, Amazon, and the like. EIS aims to spread more money available for investments and keep them local in the UK and across local communities.
The EIS helps small companies launch, take off, and grow. The more successful small and medium-sized companies in the economy, the better for everyone.
Accessing credit promptly is often a problem for many growing businesses, so schemes like these are essential in bringing business owners and potential investors together.
The businesses get much-needed credit, the investor receives returns on their investments, while also being able to access tax incentives in the short and medium term.
EIS is a win-win situation under ideal circumstances; here’s how to minimise your tax bill by investing in EIS initiatives.
Income Tax Relief
Investors in the UK can make relief claims for up to 30% of income tax on EIS investments. This incentive is great for attracting people to support local and growing businesses.
You may not be able to claim up to 30% every time, but working with a tax professional can help you maximise your tax relief.
Remember that the maximum amount investors can claim relief on every tax year is £1 million. If you invest in an unapproved EIS fund, you can treat the investment as though it were made in a previous tax year, taking your yearly limit to £2 million.
Tax-Free Growth
When you decide to exit your position as an EIS investor, the growth in value from your investment is (usually) 100% tax-free.
To qualify for this, you need to have held shares in the company for at least three years, while the business must fulfil EIS-qualifying criteria in all three years.
You must also claim income tax relief and not have it withdrawn by HMRC before exiting your position. The upsides are incredible when you consider the potential of investing in a promising company at an early stage.
Capital Gains Deferral
There are a handful of exciting ways investors can defer capital gains while active in the financial markets. EIS is an excellent example of this concept in action because it was imagined to be a cycle where investors make money and reinvest in new EIS ventures.
For this, you need to reinvest the gain, not sales proceeds. Let’s say you invest £100 in an asset and sell it for £500. The gain would be £400, which can be reinvested in EIS-qualifying businesses to defer gain.
Happy Earning
Every great investor knows they must take advantage of all their opportunities to make money throughout their investment cycle. Earn and access tax incentives when you invest, defer earnings to maximise returns, and earn more when you exit positions. You’ll always be winning.
