Tax-efficient investing – are you paying more tax than you need to?

Tax-efficient investing – are you paying more tax than you need to?

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Published: 09 Jan 2017 Updated: 13 Jun 2022

Did you know that this is the time of year when people are most likely to take action to sort their finances out? While for some it’s the lingering spirit of new year's resolutions, for many it's actually the looming Self-assessment deadline on 31 January that does the trick.

There’s nothing quite like a tax return to focus the mind on how much money goes the way of the taxman every year. So, while taxes are of course essential to the running of the country, it does make a lot of sense to make sure you aren’t paying more than you have to.

Personal allowances

UK residents are entitled to personal allowances for Income Tax and Capital Gains Tax. This tax year they are:

  • £11,000 for Income Tax
  • £11,100 for Capital Gains Tax

In addition, the personal savings allowance lets you earn up to £1,000 interest (or £500 if you are a higher-rate taxpayer) from your savings without paying Income Tax.

You also have a tax-free dividend allowance, which means that you won’t have to pay Income Tax on the first £5,000 of your dividend income.

ISAs (Individual Savings Accounts)

ISAs are savings accounts that come with tax breaks. With an ISA your savings grow free from Income Tax and Capital Gains Tax.

Every year you have an ISA allowance. This is the amount you can save into your ISAs while benefitting from their tax breaks. In the current tax year your annual ISA allowance is £15,240.

Pension contributions

You don’t pay Income Tax or Capital Gains Tax on investments held in your pension, and you get tax relief on your contributions.

The Government automatically pays 20% of your pension contribution. Higher and additional-rate taxpayers can claim another 20% or 25% tax refund back through their tax return. This means a £100 contribution could cost you as little as £55.

You can pay as much as you earn into your pension each year, up to a maximum of £40,000. However, if you have income of more than £150,000 your annual allowance is tapered down to a minimum of £10,000. The allowance reduces by £1 for every £2 of income over £150,000.

More sophisticated tax-efficient investments

There are also a number of tax-efficient investments for more sophisticated investors. You can find out more by downloading our guide to Tax-efficient Investing.

Can our financial planners help you with tax-efficient investing?

Our financial planners are experienced at helping clients invest in the most tax-efficient way. Why not start 2017 by booking a no-obligation consultation with a financial planner?


This article was previously published on Tilney prior to the launch of Evelyn Partners.