5 ways to make tax-efficient investments in the UK

To have the best chance of achieving a successful financial outcome from all your future goals, it's essential you optimise your investments to have as much money sheltered from tax as possible.

In this article, you'll learn five of the best ways to make tax-efficient investments in the UK, and how these methods can improve your approach to wealth building.

1. Seek advice from a financial expert

Arguably, the best way to ensure you're making the most tax-efficient investments to grow your finances, is to seek the advice of a modern wealth manager.

By obtaining expert investment and wealth management advice, you'll be given all the crucial knowledge and guidance needed to navigate the potential tax charges in your investments.

Your adviser will assess your current financial circumstance, and use this as a basis on which to form your approach to investing. They'll also take into account any challenges or concerns you might have about investing your money.

Their guidance will be tailored to your unique circumstance, so your investments can have the right balance of risk and potential return, in regards to your current financial status.

2. Contribute to your pension

You can also make tax-efficient investments by contributing to your pension. Due to the tax allowances applicable on your pension, you're able to invest money whilst remaining sheltered from tax.

As of the current tax year, 2022/2023, the annual pension allowance is £40,000. This is the total amount you can contribute in one tax year, without needing to pay tax on your savings. The lifetime allowance, which is the total amount you can have in your pension pot at any time whilst being sheltered from tax, is £1,073,100.

With the help of your adviser, you can structure your pension contributions to make the most of your allowances, and shelter as much of your money from tax as possible, to continue to grow your wealth for retirement.

3. Invest in an ISA

Another investment type that's great for tax-efficiency, is to save money in an Individual Savings Account (ISA).

ISAs enable you to save a certain amount of money each tax year, and remain sheltered from any potential tax charges. As of the current tax year, the ISA allowance – the total amount you can save tax-free – is £20,000.

There are four main types of ISA:

• Cash ISA
• Stocks and shares ISA
• Innovative finance ISA
• Lifetime ISA

You can only open one of each type every tax year, and the total allowance applies collectively across all four types.

By investing in an ISA, you can save tax-efficiently each year, especially by incorporating tips such as using a spouse's allowance to essentially double your maximum limit.

4. Make the most of your Capital Gains Tax

In order to make tax-efficient investments, it's also important to make the most of your Capital Gains Tax (CGT).

This is a tax charge that applies to the profit you make when you sell an asset. Therefore, if you're investing in something such as property, for example, it's important to discuss with your adviser the best approach to managing your CGT.

For example, pensions and ISAs are exempt from CGT. Also, there is an allowance of £12,300 (and £6,150 for trusts), as well as the fact that gifts sold to spouses or civil partners are exempt.

Therefore, if you choose to invest in something, and sell it on afterwards, your adviser can help you navigate the CGT for the best outcome.

5. Continuously review and evaluate your investments

As mentioned before, financial advice is one of the best ways to ensure you're making tax-efficient investments. However, a method that's just as important, is making sure you receive ongoing advice from your wealth manager.

Investments need continuous monitoring and evaluation, as the performance of your investments can change over time – such as the value of property, for instance. Also, there are various factors which could impact things like the effectiveness of your pension contributions.

Your adviser will offer advice through every stage of your financial journey, to ensure your approach to investments is consistently aligned with your financial circumstance, as well as your goals for building wealth effectively.

Please note, the value of your investments can go down as well as up.