Tax-efficient investing – Are you making the most of the £41.2 billion on offer?

The beginning of the new tax year is a great opportunity to ensure that you are making the most of tax-efficient investments.

In the 2024 to 2025 tax year, it was estimated that £41.2 billion of tax breaks existed for smart investors to utilise.

As this figure was seven per cent higher than the previous year, it is worth unpacking how it came about and considering what benefits may exist in this new tax year.

Individual Saving Accounts

Individual Savings Accounts (ISAs) were a large part of the tax relief that exists for those who are smart with their money.

Knowing how to effectively utilise ISAs means that you can get the most out of your money.

You can invest £20,000 a year in an ISA without it falling into consideration of tax.

If you were to utilise this and invest before 5 April, you can enjoy the benefit of a full tax year with your tax-free growth that can then be utilised either later in the year or in the future as you require it.

Do not forget to invest more at the start of the next year to further optimise the utility of your ISA.

Pension contributions

While pensions may soon become more challenging given the changes to Inheritance Tax, smartly investing in pensions is still an effective way to offset Income Tax and prepare for the future.

Whether by using a salary sacrifice pension scheme or saving into a self-invested personal pension (SIPP), you can prevent yourself from entering higher Income Tax brackets and move the finances into your pension pot instead.

As the access to your pension is still not as culpable for tax as a salary, this remains a smart investment strategy.

Be mindful that your unspent pension pot will be considered part of your estate for Inheritance Tax purposes as of April 2027, exposing your entire inheritance to taxation.

Changes to Capital Gains Tax

Capital Gains Tax (CGT) underwent notable changes to reduce its tax efficiency.

Where once the tax-free threshold was £6,000, it was reduced to £3,000.

While disappointing for those seeking it as a viable way to offset tax payments, the fact remains that some relief is better than none.

Combining CGT relief with other forms of smart investment can be a vital part of a tax-efficient investment strategy.

Venture capital schemes

If you have the capacity, Venture Capital Schemes (VCTs) can be an extremely tax-efficient way to invest.

VCTs offer 30 per cent Income Tax relief on invested amounts up to £200,000, and these can also yield tax-free dividends with the added benefit of there being no CGT on gains.

If your investment budget stretches to it, an Enterprise Investment Scheme (EIS) offers 30 per cent relief on investments up to £1 million.

These can be combined with other forms of relief to provide a network of tax-efficient investment options.

Ultimately, knowing what options are available to you can ensure that your investments remain as tax efficient as possible.

Seeking professional advice is always wise, given the ever-changing economic landscape.

If you want to maximise your money, speak to our team today.