It's important to look at your finances with your whole family in mind, ensuring everyone’s needs are considered. An efficient wealth strategy that utilises the tax allowances you are entitled to can support your family today and provide for them over time.

Firstly, understanding tax-efficient investment options, which we will provide an overview of shortly, is key. Protecting investments from being subject to capital gains or income taxes using the allowances you are entitled to, can be incredibly powerful. This is a crucial starting point.

Making the most of your ISA allowance

Investing for the future shouldn’t restrict your current lifestyle to a level you aren’t comfortable with. But using the tax allowances you are entitled to is central to an effective and efficient strategy to build wealth.

While there are various different types of Individual Savings Accounts or 'ISAs', we will focus here on the Stocks and Shares ISA. It is a 'tax wrapped' way to invest in financial markets. Tax wrappers are types of accounts that allow UK residents to save and invest in a tax-efficient manner.

In the context of ISAs, tax efficiency means that any returns on savings and investments held in your ISA will not attract tax, provided you do not exceed the government-set annual ISA allowance. The annual ISA allowance for the current tax year is £20,000.

Tax benefits

Investing in a Stocks and Shares ISA offers three main tax advantages:

1. You don't pay tax on dividends from shares
2. You don’t pay Capital Gains Tax
3. You don’t pay tax on interest earned

These benefits can provide a powerful platform for any investments you choose to hold in your Stocks and Shares ISA. While they don’t offer the tax relief qualities that pensions can, they also don’t have the access restrictions of pensions. You should always check with your ISA provider around any restrictions they may have. If it’s not a flexible ISA and you make a withdrawal, any allowance used in the tax year will remain used and the money can’t be added back in to benefit from your ISA allowance. Typically though, these products can be used with a great deal more flexibility than pensions.

Flexibility

While retirement planning has a particularly long time horizon from start to finish, you may be looking at more immediate financial objectives over the next 5-10 years. Whether it be investing to fund a home extension to keep up with a growing family, or in expectation of future school or university costs, having an investment account that provides the tax wrapping qualities mentioned, can be a strong starting point. While returns on investments aren’t guaranteed, the benefits of the tax wrapping are clear.

To open an ISA you must be over 18, and a resident of the UK. If you're not resident in the UK but are a member of the armed forces or a Crown servant (for example diplomatic or overseas Civil Service) or their spouse or civil partner, you can also open one.

For more information on ISAs and the various different types we offer, you can read our guide.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Tax rules vary by individual status and may change.