The DIY investor should ensure portfolios are as efficient as possible by making best use of the available allowances.


For most investors the big two of these are the Individual Savings Account (ISA) and their pension.  The two make for a classic combination that ensures your money works even harder. But don’t forget the annual capital gains tax allowance because if used each year, over the longer term it can add thousands of pounds to the value of assets.


ISAs and Pensions


For most investors, the ISA is a staple component of their portfolio.  For the current tax year, investors can subscribe up to £20,000 in stocks and shares and cash ISAs.

For DIY investors, shares, funds and bonds are likely to dominate ISAs and it is possible to manage the assets, buying and selling as the holder chooses.

While funds need to be subscribed before the tax year end to use this year’s allowance, there is no compulsion to invest straight away if it is judged that market conditions are not yet right.

Within the wrap profits can be taken tax free and there is no further liability on dividends and distributions.

The other big product in most investors’ long term planning will be a pension.

Again the wrap is tax efficient with no further liability on profits and income but the pension also offers tax relief on subscriptions. Investors can subscribe up to 100% of the earnings they pay tax on this year, up to the maximum annual allowance of #40,000.

For DIY investors seeking maximum control, Self Invested Personal Pensions (SIPPs) are perhaps the most attractive way of saving for retirement. They put the ‘Member’ in the driving seat, making investment decisions of what to buy and sell, within the universe of permitted assets, and as importantly, when.


CGT Allowance

One often overlooked allowance is the annual Capital Gains Tax allowance. The Revenue allows us to make profits each year of up to £12,300 free of tax. Over the years this can really add up but if it’s not used, that allowance will be lost.

Portfolios can be made more tax efficient by taking advantage of this allowance. Taking profits each year can ensure that when you want to sell in the future, you haven’t built up unnecessarily large – taxable – profits.

Many investors take profits up to the annual allowance each year; often offsetting profits against losses. But you don’t need to lose investments that you still favour.

Matching rules mean that you can’t buy back the stock within 30 days and register a profit or loss for tax purposes. However, a ‘Bed and ISA’ transaction means you sell an asset to take the profit but by repurchasing within the tax wrap of an ISA, you maintain exposure. Ask your broker about the process.




The perennial debate about whether to choose an ISA or a SIPP is all around us again. There are of course differences: both offer tax efficient environments for profits and income.

The pension attracts tax relief and contributions can be back dated, but cannot be accessed until retirement.

‘The truth is that these are reliefs offered by the government and the combination of ISAs, pensions and the annual CGT allowance can be used to make your assets as efficient as possible’

The ISA is more flexible and while there is no relief on subscriptions, an income can be drawn with no additional liabilities. Both can be employed for children and can form the basis of investing for their future.

The truth is that these are reliefs offered by the government and the combination of ISAs, pensions and the annual CGT allowance can be used to make your assets as efficient as possible.

Over the longer term the potential savings in tax liability on profits, income and relief on subscriptions can be truly profound. Tax erodes the value of investments. Make as full use of these allowances to protect your wealth.

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