Investments can offer better long-term returns than cash (although this is not guaranteed), but tax can eat away at your profits without some careful planning.
Investments can offer better long-term returns than cash (although this is not guaranteed), but tax can eat away at your profits without some careful planning.
There are several tax allowances that apply to investment returns, which you should be sure to utilise to minimise the tax you owe.
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CGT and Dividend Allowance have been greatly reduced in recent years, meaning it’s important to make maximum use of tax-efficient investment schemes to minimise your tax burden.
Fortunately, there are some tax-efficient investment vehicles that you can use to maximise the value of your returns and minimise your tax liability.
You can save up to £20,000 into an ISA in any given tax year without paying tax on investment returns.
These tax-efficient investment accounts can be suitable for beginner investors and allow you to invest in assets including shares, funds, investment trusts and bonds. Depending on your preference, you can either choose to invest in ready-made funds aligned with your risk profile (best for beginners) or you research and buy your own shares (best for more experienced investors). Remember that, as an investment account, the value of your investments can fall as well as rise, and you may not get back as much as you invested.
You can also invest up to £9,000 into a Stocks & Shares JISA on behalf of a child under the age of 18.
Offshore bonds are tax-efficient wrappers that enable you to invest your money whilst benefiting from advantageous tax regimes in other jurisdictions. In addition to these significant tax advantages, they can also be structured to be held in a trust for beneficiaries, making them an excellent tool for estate planning and IHT mitigation purposes.
They offer a range of investment options, including stocks, shares, mutual funds, property, fixed income securities and cash deposits.
One of the main advantages of offshore bonds is tax-deferred growth, which essentially means that you can defer the payment of tax on investment growth until the date of withdrawal. Many people therefore choose to wait until they are in a lower tax bracket (perhaps when they are in retirement or semi-retirement) before making withdrawals. You can also withdraw 5% of the original capital per year tax-free, which can be carried forward into cumulative years if unused.
Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) were established in the UK in 1994 and 1995, respectively. The two schemes allow individuals to invest their money in early-stage startup companies, and – in recognition of the fact that investing in such companies is inherently riskier than investing in established businesses – both have significant tax advantages.
Under the two schemes (and a third scheme called the Seed Enterprise Investment Scheme), eligible businesses can raise up to £5m per year, up to a lifetime cap of £12m.
You should always take professional financial advice before investing in a tax-efficient investment scheme.
The EIS scheme gives investors a direct stake in the companies they invest in through the ownership of shares. Those who invest in the EIS can claim 30% Income Tax relief on sums up to £1m per year (or up to £2m if at least £1m of that sum is invested in knowledge-intensive companies).
EIS investors are also exempt from Capital Gains Tax (CGT) upon the sale of their shares, if they have held those shares for three years or more.
Unlike the EIS scheme, which allows investors to buy shares in an eligible company, a VCT is a company listed on the London Stock Exchange that raises money and invests it in early-stage, innovative startups.
Investors put their money into the VCT (rather than directly into their chosen company), which then invests in the companies of its choice.
Investors benefit from 30% Income Tax relief on sums up to £200,000, in addition to tax-free dividend payments. Within certain parameters, there is also no CGT to be paid on the sale of VCT shares.
When it comes to investments, particularly with regards to riskier investment schemes, professional advice is key to ensure your wealth is working as hard as possible for you.
The guidance and/or information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
RetireInvest Limited is registered in England and Wales. Company Number 09916200. Registered Address 4 Finkin Street, Grantham, Lincolnshire, England, NG31 6QZ.
Tel: 0800 028 4040
RetireInvest Limited is an appointed representative of Quilter Financial Services Limited and Quilter Mortgage Planning Limited, who are authorised and regulated by the Financial Conduct Authority.
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Estate Planning, Trusts, and Tax Planning advice is not regulated by the Financial Conduct Authority.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
Registered Address 4 Finkin Street, Grantham, Lincolnshire, England, NG31 6QZ.
Approver Quilter Financial Services Limited and Quilter Mortgage Planning Limited June 2025
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Neither Retire Invest Nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.
Neither Retire Invest Nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.
Neither Retire Invest Nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.
Neither Retire Invest Nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.
Neither Retire Invest Nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.
Neither Retire Invest Nor Quilter Financial Planning are responsible for the accuracy of the information contained within the linked site.
