How to make the most of tax wrappers when investing

When investing your money, one of the most important things to consider is how tax-efficient you’re being.

A key aspect of this is being able to invest effectively in tax wrappers. These are investments which shelter your money from potential tax charges.

To give you more insight into this, we’ll take you through a few of the ways you can make the most of tax wrappers when investing, and how this can benefit your wealth.

1. Receive guidance from a modern wealth manager

As with any aspect of your finances, seeking advice from your modern wealth manager is crucial to executing your tax wrapper investments.

With guidance from your wealth management service, you’ll receive extensive knowledge on all the tax rules that apply to different tax wrappers, as well as the potential benefits of various allowances.

More importantly, your adviser will base all of their guidance on your personal financial circumstance, including what your finances look like now, and what goals you have for the future.

This will ensure each of your investments are designed to build your wealth effectively, with each of your goals at the forefront.

As well as this, your adviser will take into account any concerns or obstacles you might be facing in terms of your financial capabilities.

They can ensure each of your tax wrapper investments have the right balance of risk and potential returns, so you can grow your finances in a way that’s suited to your unique circumstance. If you prefer to manage your investments yourself or with the help of a dedicated investment platform, Finance expert Michael Barton at Wallet Savvy has rounded up the best investment apps here.

2. Optimise your pension contributions

Another way to make the most of tax wrappers, is to optimise how you contribute to your pension pot. When building your wealth for retirement, how you structure your contributions is vital to growing your savings as efficiently as possible.

Once again, this process is best executed using the help of your expert adviser, who can greatly assist you in understanding and navigating the tax rules on your pension.

For instance, they can make you aware of the allowances you have on your pension, and show you the right contributions to make to take advantage of them.

As of the current tax year, 2022/2023, the annual pension allowance is £40,000. This is the limit on how much you can contribute each tax year, whilst remaining sheltered from tax. The current lifetime allowance is £1,073,100, which is the total amount you can contribute in your lifetime whilst being sheltered from tax.

You also don’t pay Capital Gains Tax (CGT) on any gains from your pension savings, which further increases the tax efficiency of this wrapper.

3. Invest your money in ISAs

You can also manage your tax wrappers more effectively by choosing to invest in individual savings accounts (ISAs).

ISAs are a great form of investment that allow you to save money each tax year, without needing to pay any tax charges, up to a certain amount. As of the current tax year, ISAs have an allowance of £20,000.

ISAs come in four types – cash ISAs, lifetime ISAs, innovative finance ISAs, and stocks and shares ISAs. Each year, you can only open one of each type, and your allowance must be spread across every ISA you choose to open that year.

As a result, you have a simple yet tax-efficient way of investing your money, so you can grow your wealth effectively within these wrappers.

Now you understand how you can optimise your tax wrapper investments, be sure to consult with your wealth manager on how you can approach these savings, to start building 

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