How to invest in the most tax-efficient way

Posted 11.01.2022

Working tax considerations into your financial planning will not only help to make you better off in the short term, it will help you enjoy a wealthier retirement. It’s easy to pay too much tax if you don’t plan effectively so it’s important to familiarise yourself with tax rules and use two of the most tax efficient vehicles (pensions and ISAs) to help grow your wealth.

Here are some of the ways to invest in the most tax efficient way:

Making the most of your annual allowance

Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax.

In the tax year 2021/22, the annual allowance is £40,000 (or 100% of earnings if less), and this amount includes the value of any tax relief that is added to the contributions. This includes any personal pensions you may have and any work-place schemes you may be a member of (including final salary schemes). It doesn’t include any state pension.

Try and make the most of your annual allowance, through regular contributions or a lump sum when you have the funds.

Putting money into an ISA

Putting money into a cash or stocks and shares ISA is also another tax efficient way of saving money.  You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax.

You won’t pay UK tax on any income or capital gains your ISA makes, provided all ISA conditions are met.

Saving into a pension

Pensions are a fantastic way to save tax efficiently for retirement because each time you pay in money, the government adds 20% tax relief. This means a £100 pension contribution only costs you £80. If you’re a higher or additional-rate taxpayer, you can claim a further 20% or 25%, respectively, via your tax return.

Inheritance tax

As you get older, you are also likely to start thinking about how you will pass on your wealth when you die. Inheritance Tax rules are complex; an adviser can discuss your options with you, from minimising tax by taking advantage of gifting allowances, to the use of certain trusts.

Making use of work bonuses

As your career progresses and you start earning more, you may be earning bigger bonuses each year, so it’s important to think about how to invest those tax efficiently such as contributing a one-off lump sum to your pension pot, which, over time, can make a big difference to the sum you have when you retire.

Paying yourself in the most tax-efficient way

If you are self-employed or own a limited company, you will need to speak to an accountant or financial adviser about the best way of extracting value from your company and pay yourself in the most tax-effective way.

Whether it’s taking some financial advice or looking for the tax benefits on offer from a pension or an ISA, sensible tax planning can save you money and grow your wealth over the long term.

Speak to our financial advisers today and set yourself up for financial confidence.


The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. An investment in Stocks and Shares ISA does not provide the security of capital associated with a Cash ISA.

The levels and bases of taxation and reliefs from taxation can change at any time and are generally dependent on individual circumstances.



Trusts are not regulated by the Financial Conduct Authority.

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