How to be Tax-Efficient: Structuring Your Wealth

Personal Allowance

The standard personal allowance is £12,570, which is the amount of income you do not have to pay tax on.

Additionally, your personal allowance will be reduced by £1 for every £2 you earn over £100,000. This means that by the time you earn £125,140, you will have to pay income tax on all of your income.

Individual circumstances can also impact your personal allowance, such as the under / overpayment of tax from previous tax years, marriage allowance, or receipt of child benefit for example.

Dividend allowance

An individual has a dividend allowance of £1,000 (2023/24 tax year) to set against any dividend income, with no tax being due on this amount. This is £1,000 less than in the 2022/2023 tax year.
 

Capital gains tax (CGT) exemption

Capital gains (gains arising from disposals of certain capital assets) of up to £6,000 are exempt from tax in the 2023/24 tax year. This is a reduction from £12,300 from the previous tax year. The CGT exemption will fall again to £3,000 in 2024/25 tax year.
 

Individual savings accounts (ISAs)

ISAs are among the most tax-efficient investment wrappers available. Assets within an ISA are not subject to income tax or capital gains tax and can generally be accessed at any time. Individuals can invest up to £20,000 per tax year (2023/24 ISA allowance) into an ISA.
 

Junior ISA

Under 18s can invest in a Junior ISA where the savings limit is £9,000. If aged between 16 and 18, you can also invest in a Cash ISA up to a maximum of £20,000.
 

Pension Annual Allowance

Your pension annual allowance is the most you can accumulate annually in a pension scheme and still receive tax relief. The maximum is usually the lessor of £60,000 or 100% of your earnings. Although for those with higher earnings and / or who have accessed their pension already this can reduce to £10,000.

Unused annual allowances for the preceding three tax years may be used subject to having enough taxable relevant earnings in the year of making a pension contribution. Funds can be accessed from age 55 (under current rules), with up to 25% paid tax-free, usually subject to a limit of £268,275.
 

Enterprise Investment Scheme (EIS)

An investor who subscribes for shares in an EIS-qualifying company can obtain an upfront income tax reduction of up to 30% on investments of up to £2m each year. There are many other tax advantages, including tax-free capital gains after completion of the required holding period.
 

Venture Capital Trusts (VCTs)

An investment into qualifying VCT shares enables an investor to claim several tax incentives on investments up to £200,000 each year, including up to 30% tax relief. Any dividends paid from the investment will be tax-free.
 

Investments with inheritance tax (IHT) advantages

Some investments in UK companies qualify for Business Relief. If certain criteria are met, these investments can be passed on to your beneficiaries free of IHT. We recommend discussing these investments, as part of a wider strategy, with a Wealth Planner.