The UK government provides several benefits for its citizens and investors. While some of the state benefits are taxable, several tax-free benefits make the UK a great place to start a business, work, and invest in the country.
People living in the UK receive some state benefits that they do not have to pay income tax on. These benefits form a part of non-taxable income and do not need to be reported to the HM Revenue and Customs.
The tax-free welfare benefits include allowances, grants, pension, payment and employment benefits. Some of the tax-free allowance include attendance allowance, guardian’s allowance, disability living allowance, employment and support allowance, and maternity allowance. The payment welfare benefit includes bereavement support payment, funeral support payment, job start payment and cold weather payments. Children welfare benefits include child benefit and child tax credit.
The pension benefits include war widow’s/widower’s pension, pension credit and war disablement pension. The UK government also provides tax benefits on pension contributions relative to your income tax band. A 20% tax relief is offered to basic taxpayers while higher taxpayers get 40% tax relief. Other tax-free welfare benefits include housing benefit, income support, return to work credit and young carer grant.
In addition to the tax-free welfare benefits mentioned above, interest and income received from specific types of savings and investments are also tax-free. They include interest received from a child trust fund, national savings and investment certificates, ISAs, tax reserve certificates, and any withdrawal of up to 5% of the amount invested originally from insurance policies.
Other forms of tax-free benefits in the UK consist of adoption allowances, work-related training courses, child tax credit, educational grants and student loans, education maintenance allowance, fares to school, foster care receipts, bravery awards, and housing grants from the local authority, among many others. The employees in the UK also receive certain tax-free company benefits. These benefits cover meals in the staff canteen, a mobile phone, hot drinks and water at work, and workplace parking. Some employers also provide tax-free childcare support in the form of childcare vouchers.
The UK government provides multiple other benefits, but such state benefits are taxable. The taxable state benefits include bereavement allowance, carer’s allowance, incapacity benefit, jobseeker’s allowance, the State Pension, widowed parent’s allowance, and contribution-based employment and support allowance.
In addition to the taxable state benefits, the other types of taxable income consist of income from trusts and settlements, gains on life insurance policies, profits from the sale or renting a property, purchased annuities, and gains on motor mileage allowances.
Some of the company benefits mentioned above are tax-free, while others are taxable. The employees are required to pay tax on the cost of insurance premiums, low-interest or interest-free loans from employers worth more than £10,000, and accommodation provided by employers.
Tax Reliefs and Incentives
The UK government offers a variety of tax-free and taxable benefits to the people in the country. The government has also created some venture capital schemes to provide tax reliefs and incentives to investors in the UK. The most common venture capital schemes include:
Enterprise Investor Scheme
The Enterprise Investor Scheme (EIS) was launched in the UK in 1994. The scheme was designed and initiated by the UK government to encourage investments in small and young companies. The investors in such early-stage companies enjoy generous tax reliefs. Individuals receive a 30% relief on their income tax for up to £1 million investments in such companies per tax year. Additionally, shares held in the young companies under EIS are exempt from capital gains tax if they are held for at least three years. Any losses incurred can be set off against capital gains or income tax. Thus, the programme makes it easier for early-stage companies to raise capital by incentivising investors.
Seed Enterprise Investment Scheme
SEIS is another scheme that offers tax relief to investors for investing in early-stage and young companies. The SEIS scheme, established in 2011 aims to promote entrepreneurship in the country. It applies specifically to companies that are starting a new qualifying trade or working on research and development that is expected to lead to a qualifying trade.
Investors in the SEIS receive an income tax relief of 50% on their investments up to £100,000 per tax year and a capital gains exemption. The Seed Enterprise Investment Scheme is quite attractive for investors and helps them save taxes even if their entire investment fails.
Social Investment Tax Relief
The SITR was launched in 2014 to increase the availability of capital for organisations that are struggling to raise capital through traditional means. The focus of SITR is on organisations like community interest companies, community benefit societies, social impact contractors, and charities. The Social Investment Tax Relief programme aims to generate a positive social return in addition to the positive financial return.
The tax reliefs to investors under the SITR include income tax relief of 30% on up to £1 million investment per tax year, tax-free capital gains on disposal, deferral of capital gains tax, and loss relief against income.
Venture Capital Trust
The UK government has created venture capital trust as a closed-ended publicly-listed fund for individual investors to access venture capital investments through capital markets. Several venture capital trusts are listed on the London Stock Exchange and allow investors to invest in unlisted companies capable of generating high returns.
The investors in venture capital trusts can claim up to 30% tax relief on their investments, capital gains tax exemption, and tax-free dividends.
Thus, the UK government provides several tax reliefs to investors while assisting small and upcoming businesses to grow. The companies that invest in research and development projects in the UK are also eligible to receive up to 230% research and development tax reliefs.
Thus, with its simple and transparent tax rates, numerous tax-free and taxable state and company benefits, and a plethora of tax relief schemes, the UK remains an excellent country for individuals to work, earn, and invest. At the same time, the tax benefits of the UK government for growing businesses make it an ideal country for establishing and expanding businesses.
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