Tax-efficient investing: making the most of your investments

Whether you're investing to support your retirement plans, save for future goals, or simply make the most of your money over the long term, taking tax efficiency into account can be an important part of your financial planning.

While tax rules can seem complex, a little knowledge can go a long way. In this article, we'll explain some of the key taxes that can affect your investments and how different account types, such as ISAs and General Investment Accounts (GIAs), can impact your tax costs.

If you hold your Solution Fund investment within an ISA, you'll already be benefiting from one of the UK's most popular tax-efficient ways to invest.

ISAs allow your investments to grow free from UK income tax and capital gains tax (CGT). This means that any gains you make, as well as any income generated by investments held within your ISA, are generally protected from these taxes.

You can currently invest up to £20,000 each tax year across your ISA allowances. Making regular use of this allowance can be a simple and effective way to build your investments while making the most of available tax benefits.

Tax treatment depends on your individual circumstances and may be subject to change in the future. However, ISAs continue to be a valuable option for many investors looking to invest in a tax-efficient way.

It's also worth being aware of planned changes to ISA rules. From 6 April 2027, if you're under 65, you'll be able to pay up to £12,000 a year into a Cash ISA. However, the overall ISA allowance will still be £20,000.

So, if you normally use a Cash ISA and want to make the most of your full ISA allowance, you may want to consider investing some of your money through a Stocks and Shares ISA.

As with all investments, the value can go down as well as up, and you could get back less than you originally invested. If you're aged 65 or over, the Cash ISA limit is expected to remain at £20,000.

Some investors choose to hold their Solution Fund investment through a General Investment Account (GIA).

Unlike an ISA, a GIA doesn't provide the same tax advantages. This means you may need to pay tax on any investment income or gains that exceed your available allowances.

However, a GIA can still play an important role in your investment planning. It can be particularly useful if you've already used your annual ISA allowance, and if you want to invest more than the yearly ISA limit allows.

If you hold investments in a GIA, it's helpful to understand the taxes that may apply and how they could affect your overall returns.

Tax treatment depends on your individual circumstances and may change in the future. However, there are several key taxes that investors should be aware of when holding investments outside a tax-efficient wrapper such as an ISA.

Most people associate income tax with earnings from work, but it can also apply to certain types of investment income.

For the 2026/27 tax year, the standard personal allowance is £12,570. This is the amount of income most people can receive before paying income tax.

There is also a Personal Savings Allowance which applies to interest earned from savings and certain investments:

• £1,000 for basic rate taxpayers
• £500 for higher rate taxpayers
• £0 for additional rate taxpayers

Any interest earned above these allowances is usually taxed at your marginal rate of income tax.

Some investments pay dividends, which are payments made by companies to shareholders.

Each individual currently has a dividend allowance of £500 per tax year. Dividend income above this allowance may be subject to dividend tax at the following rates:

• Basic rate: 10.75%
• Higher rate: 35.75%
• Additional rate: 39.35%

If your investments are held within an ISA, dividend income is generally not subject to dividend tax.

Capital gains tax (CGT) may apply when you sell an investment for more than you originally paid for it.

Each individual currently has an annual CGT allowance of £3,000. Any gains above this may be subject to tax.

The rate you pay depends on your overall taxable income and the type of asset being sold. For many higher and additional rate taxpayers, any gains realised after 6 April 2026 may be taxed at 24%.

Investments held within an ISA are generally exempt from capital gains tax, which is one of the reasons many investors choose to make use of their ISA allowance where possible.

As an investor in one of our Solution Funds, you're already taking a long-term approach to investing. Ensuring your investments are held in the most suitable account for your circumstances can be another important part of your financial planning.

While tax-efficient accounts such as ISAs can help reduce the amount of tax you pay, investment returns are never guaranteed. The value of investments can go down as well as up, and you could get back less than you originally invested.

Tax rules and allowances can also change over time. That's why it's worth reviewing your investments regularly and considering whether your current arrangements continue to support your financial goals.

A little planning today could help more of your money remain invested and working towards the future you're aiming for.

This article is for information purposes only and should not be considered as investment advice.

Tax treatment depends on your individual circumstances and may be subject to change in the future.

The value of investments and any income from them can fall as well as rise, and you may get back less than you originally invested.

This article refers to third-party sources which we believe to be accurate at the time of publication.

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