There are various tax charges that could apply to your finances, which is why you need the right approach to optimise your investments, and ensure you build your wealth in the most tax-efficient manner.
In this article, you’ll learn what tax wrappers are and how they can help you optimise your investments, shielding them from tax.
You’ll also see how expert financial advice, such as that offered by Netwealth wealth management, can further increase your chances of a successful financial outcome with tax-efficient investing.
What are tax wrappers?
Tax wrappers are specific vehicles which allow you to shelter a portion of your money from tax. When you invest your money in these tax wrappers, there will often be a specific amount – otherwise known as an allowance – you can contribute without having any tax charges applied.
There are various types of tax wrappers available, such as:
Your pension – This is where you contribute money towards your retirement, and build your funds in a pension pot. This shelters your money from tax, as long as you stay within your allowances. As off the current tax year 2022/2023, the annual allowance is £40,000, and your lifetime allowance is £1,073,100.
An ISA – An individual savings account (ISA) is another useful tax wrapper, as it allows you to save a certain amount each year while still remaining free from tax. As of the current tax year, your annual ISA allowance is £20,000.
How can you optimise your investments with tax wrappers?
There are a variety of things you can do to optimise your investments with tax wrappers, including:
Seek a financial adviser
One of the most important steps towards optimising your money with tax wrappers is to seek advice from a modern wealth management service.
Your expert adviser will thoroughly analyse every aspect of your current financial circumstances, as well as taking into account any challenges you might be facing with tax efficiency.
They can then offer you unique guidance on how best to approach your tax wrapper investments, to ensure as much of your money is sheltered from tax as possible, and help you grow your wealth effectively for the future.
For instance, they can help you make the right contributions to your pension that ensure optimal shelter from tax, as well as maximising the returns to build your wealth.
Diversify your investments across different tax wrappers
Another way to improve your finances with tax wrappers is to ensure you diversify your investments strategically.
Your adviser can make you aware of all the tax charges and allowances that will apply to your investments. This way, they can help outline the best plan for distributing your money into each tax wrapper, and sheltering as much of it from tax as possible.
For example, you may be reaching your pensions lifetime allowance, and not want to be charged tax on the excess. As a result, you can explore options for ISA investments, to use up your £20,000 annual allowance of tax-free savings.
This allows you to make the most of each tax wrapper and fully benefit from all your allowances to build your wealth more efficiently.
Consider ongoing financial advice
It may also be beneficial when investing through tax wrappers to receive ongoing financial advice.
Various aspects of your financial circumstances could change, such as your career, lifestyle, number of dependants, and you could also be affected by market performance and the cost-of-living.
Ongoing financial advice could help to ensure you’re continuously optimising your investments in a way that best aligns with your current circumstances. As your finances evolve, your adviser’s guidance will, too.
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Please note, the value of your investments can go down as well as up.