One of the most important things I've learned about tax efficient investing is that the playing field keeps changing. With taper relief, it used to be really efficient to have a large AIM portfolio - now it isn't. You used to get capital gains tax rollover through VCTs - now you don't.
However, there are still plenty of ways to invest in a tax-efficient way. The most obvious for any stock market investor is of course the ISA. You can put £7,200 this year, unless you're over 50, in which case you can invest £10,200 - next year, that goes up to £10,200 for everyone. Most brokers offer a self-select ISA (I'm assuming most Stockopedia readers won't want to buy funds). Over time, you can build a fairly significant ISA portfolio.
An ISA will give you several advantages. No CGT. No income tax on dividends (though you still pay 20% through the tax credit which can't be reclaimed). And no need to fill in anything about it on your tax form. While the income tax break isn't significant unless you're paying higher rate tax, the CGT tax break can be very useful. You can take profits on your positions without having to worry about whether you're going to incur CGT. A £100,000 portfolio might only generate £4,000 in dividends a year - but you're much more likely to incur over the £9,200 capital gains tax threshold of profits.
Now you can also gain efficiencies by investing in a SIPP (or indeed any other pension scheme). The tax benefit here is up front - you can claim your contributions as an allowance against your income tax liability. I won't go into it in detail - that would take another article! - but subject to the lifetime and annual limits this can be an efficient way to invest.
VCTs are another useful break. These are investment trusts which invest in smaller companies and comply with various stringent regulations; you can invest up to £200,000 a year (rather a lot more than with an ISA!) and you can get 30% tax relief on that. I regret immensely that I overpaid about fifty thousand quid to the government because none of my so-called financial advisers ever told me about these! I had to find out for myself.
To get the up-front tax relief you have to subscribe to a new VCT issue. But there…
