Submitted by
Sestini & Co | on Fri, 08/29/2014 - 9:57 | In
Uncategorized Today’s guest blog is by Mark Pearson. Please listen to our audioboo introduction to the topic here.
How To Beat The Tax Trap
If you have for instance £100,000 of annual income, by investing it in an Exit Focus EIS over 3 years you essentially can relieve yourself of all the income tax you would otherwise need to pay on this income.
In the first 3 years you would need to make an EIS investment of £70,000 each year that would need to be funded from savings. That makes a total injection of £210,000 over 3 years into the EIS portfolio.
From year 4 onwards, fiscal realisations from the EIS portfolio would go on to fund new investments, so you can enjoy a 100% tax rebate without committing any more cash. In fact, on this model, the portfolio is strongly cash generative in this “steady-state” phase. This model assumes that if you were earning £100,000 then you would be liable to income tax of about £30,000 at 2014/15 rates.
Here’s a simplified table of the how it would work.:
| |
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
| New investment |
100,000 |
100,000 |
100,000 |
100,000 |
| |
Tax relief |
30,000 |
30,000 |
30,000 |
30,000 |
| |
Exit proceeds |
|
|
|
130,000 |
| Injected into EIS portfolio |
70,000 |
70,000 |
70,000 |
|
| Cumulative injection |
70,000 |
140,000 |
210,000 |
210,000 |
Clearly, this plan depends on picking solid EIS companies to invest in, which exit in 4 years. The timing of exits is very important. That’s why we have given a lot of thought to delivering the exit. To see how we do it, please have a look at these three examples of our Exit Focus strategy:
- Clarity Diamonds Limited
- Growth Power Limited
- Macro Assembly Limited
For further information please contact Mark Pearson on 0207 015 2159 (http://www.rockpool.uk.com/).
