Investing tax efficiently

To make the most of your investments, you’ll want to invest tax-efficiently within an ISA or SIPP wrapper, wherever it makes sense.

How much can I invest tax efficiently?

For the tax year 2013/14 the ISA allowance for any eligible adult is £11,520. Except for a maximum investment threshold of £5,760 within a Cash ISA, the allowance is fully flexible. This means you can invest in either a Stocks and Shares ISA or a Cash ISA (or both).

Please note, tax laws may change.

Your tax efficient investing options are to buy your investments within an ISA or a SIPP account.

Investing within an ISA – how it helps

ISAs help you protect your investment returns from tax, particularly if you’re a higher rate tax payer. Although the exact rules around the tax benefits have changed over the years, this is how they stand for your 2011/12 allowance:

Capital gains tax

All your ISA investments are protected from capital gains tax. This can be particularly useful when you’ve built up a number of years' worth of ISA investments.

Income tax

You don’t have to pay income tax on any gains you make on your ISA investments. With cash ISAs this means you don’t have to pay tax on any interest paid. With shares or funds there’s actually no advantage to holding your investments within an ISA if you’re a standard rate taxpayer (as you don’t pay further tax on dividends anyway).

However, if you’re a higher rate tax payer you do get an extra tax advantage - as ordinarily you’d pay additional tax on dividends. (NB: If you think you might become a higher rate taxpayer in the future, it could make sense to invest in an ISA now to save your income in the future, when you become liable for the extra tax.)

Another advantage of ISAs is they don’t need to be recorded on your tax returns.

Please note, tax laws may change.

Investing within a SIPP – how it helps

In a similar way to ISAs, a Self Invested Personal Pension (SIPP) is an excellent way to protect your investments from tax.

Our SIPP account offers you a flexible, low cost way to avoid paying any income tax at all.

Please be aware of the risks involved. Investing in a SIPP may not suit your personal circumstances. If you are in any doubt, please consult your financial adviser.