Tax-efficient investing in the UK

Whether you're saving for retirement, a rainy day, or simply looking to make your money work harder for you, investing tax efficiently will help you keep more of your returns.

Here are some ideas to help you do it:

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Use your Individual Savings Account (ISA) allowance

Individual Savings Accounts (ISAs) are a fantastic starting point for tax efficient investing. ISAs allow you to invest up to £20,000 each tax year, and the best part is that all the returns you make are completely free from UK tax.

You can have more than one type of ISA, so long as you don’t invest more than £20,000 each tax year (which starts on 6th April). 

There are several types of ISAs:

Cash ISAs

These are similar to a savings account but with the added benefit of tax-free interest. They are a low-risk option, ideal for those who prefer stability over higher returns. A great option for your cash reserve.

Stocks and Shares ISAs

If you're looking to potentially earn higher returns and are comfortable with some level of risk, this could be a good option. Stocks and Shares ISAs allow you to invest in a range of different options including shares, funds, ETFs, bonds and more with no UK tax to pay on the returns. Find out more about our Stocks and Shares ISA.

Innovative Finance ISAs

These ISAs let you invest in peer-to-peer lending platforms, offering the potential for higher returns compared to traditional savings accounts, though with increased risk.

Lifetime ISAs (LISAs)

A cash or stocks and shares account which can be opened by those aged 18-40, designed to help you save for your first home or retirement. LISAs allow you to invest up to £4,000 per tax year, with the government adding a 25% bonus to your contributions.

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Invest in a Pension

Contributing to a pension scheme is another highly tax-efficient way to invest for the longer term. The UK Government gives tax relief on pension contributions, which means that some of the income tax you’d normally pay is added to your pension instead. 

For example, if you pay £80 into your personal pension account, it’ll be topped up with 20% tax relief. This turns the contribution to your pension into £100. 

 

Key benefits include:

  • Tax relief on contributions
    Basic rate taxpayers receive 20% tax relief, higher rate taxpayers can claim an extra 20% or 25% (based on UK rates, excluding Scotland).
  • Tax-free growth
    Investments within your pension grow free from UK Capital Gains Tax and Income Tax.
  • Tax-free lump sum
    At retirement, you can normally withdraw up to 25% of all your pension pots tax-free.

Bear in mind that you won’t be able to take money out of your pension until you are aged 55 (57 from 2028).

Find out more about our Self Invested Personal Pension.

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Consider Investments with tax breaks

These investments can help you grow your wealth while minimising your tax liability. There are a wide variety including:

Gilts (UK Government Bonds)

These are bonds issued by the UK Government to raise money – you are effectively lending to them. They offer fixed rates of income and growth. Gilts are exempt from UK Capital Gains Tax, meaning any profit you make from selling them is tax free in the UK. Check out our GILTs.

Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)

These schemes are designed to encourage investment in small, high-risk companies by offering substantial tax relief. Both schemes benefit from tax relief on some of the income paid and both are exempt from UK Capital Gains Tax, subject to conditions.

Venture Capital Trusts (VCTs)

VCTs are investment funds that invest in small, unlisted companies so again these are a potentially higher risk option. You can claim 30% income tax relief on investments up to £200,000 per tax year and any growth from VCTs is tax free in the UK.

Tax-efficient investing doesn't have to be complicated

By taking advantage of ISAs, pensions, and other tax-advantaged investments, you can keep more of your returns to help you achieve your financial goals.

Please remember that the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. If you’re not sure about investing, seek financial advice. There will normally be a charge for that advice. You may be eligible for financial advice with Lloyds Wealth. Tax treatment depends on individual circumstances and tax rules, both of which can change in the future.

Protecting your money

The Financial Services Compensation Scheme (FSCS) protects the eligible money you hold with us.

More about the FSCS

Protecting your money

The Financial Services Compensation Scheme (FSCS) protects the eligible money you hold with us.

More about the FSCS

Important legal information

The Lloyds Bank Direct Investments Service is operated by Halifax Share Dealing Limited. Registered Office: Trinity Road, Halifax, West Yorkshire, HX1 2RG. Registered in England and Wales no. 3195646. Halifax Share Dealing Limited is authorised and regulated by the Financial Conduct Authority under registration number 183332. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager.