There’s certainly more than one smart way to make your investments tax-efficient in 2025; the best approach really depends on what you’re aiming for.
Whether you’re building a nest egg, helping your little ones get ahead, or thinking about what to pass on, 2025’s tax rules mean the structure of your investments matters just as much as what you invest in.
So instead of running through every tax tip in the book, let’s look at what really makes sense depending on where you’re headed. Check out each section and see if you relate.
The Retirement Builder
If your main focus is growing your long-term pot, tax efficiency should absolutely shape how you invest.
- Use your pension allowance. For most people, that’s up to £60,000 in the 2025/26 tax year. The tapered annual allowance for high earners and the MPAA is currently £10,000 for those who have flexibly accessed pensions. Contributions come with tax relief, and your investments grow free of income tax and capital gains tax while inside the pension.
- Top up ISAs. Your ISA allowance remains at £20,000 this year. While ISAs don’t offer upfront tax relief like pensions, they provide flexibility as you can very conveniently access funds at any time, plus they’re totally tax-free on any growth and withdrawals.
- Don’t forget salary sacrifice. If your employer offers it, this can reduce your National Insurance contributions (NICs) and boost your take-home pay
If retirement isn’t your current focus, but family is, you might relate more to our next section.
The Future Gifter
Looking to build a pot for your children or future gifts? The earlier you start, the more you benefit from tax-free compounding, and there are smart wrappers available to help.
- Junior ISAs (JISAs): They let you save or invest up to £9,000 a year per child, with no tax on growth or withdrawals. Once they turn 18, the account becomes theirs, so it’s worth thinking ahead about how much control you’re comfortable giving.
- Bare trusts or designated accounts: Useful. Especially for larger gifts. Though they come with different tax implications depending on how they’re set up.
- Gifting from capital: This can reduce a future inheritance tax bill, provided that you survive seven years after making the gift.
Ask yourself: What are my funds for? Is it for education, a house deposit, or wealth transfer? This will decide what your structure looks like, as well as the timing.
But what if you’re already drawing an income from your investments? The strategy shifts again, and tax planning becomes all about timing and allowances.
The Income Supplementer
If you’re already drawing from your investments or planning to soon, managing tax on withdrawals becomes essential.
- Use your ISA first. Withdrawals from ISAs don’t count as income, so they don’t affect your personal allowance or push you into a higher tax band.
- Watch your dividend and savings allowances. In 2025, the dividend allowance is currently £500 (HMRC hasn’t announced a change for 2025/26) and the personal savings allowance is £1,000 for basic rate taxpayers. Go over these, and you’ll face a tax bill.
- Capital gains? Time withdrawals carefully. Selling investments in smaller amounts across multiple tax years can help reduce your liability, as the capital gains tax allowance has been cut to £3,000.
For example, withdrawing £10,000 from an ISA has zero tax impact, while £10,000 in dividends over your £500 allowance could incur £825 in tax (if you’re a basic-rate taxpayer).
Something to watch for: If you’re using both pensions and ISAs, you should speak to an adviser about the best order to draw from. The sequence can affect your overall tax bill and how long your retirement income lasts.
And for those thinking even further ahead, about what happens to your wealth after you’re gone, tax efficiency plays a different, but just as important, role.
The Wealth Preserver
Thinking ahead to what you leave behind?
Even if inheritance tax thresholds haven’t changed, like the frozen nil-rate band (£325,000) and residence nil-rate band (£175,000), your investment choices can still influence how much goes to HMRC.
- Pensions can be passed on tax-free if you die before age 75, and taxed at the recipient’s marginal rate if you die after. In many cases, pensions are more IHT-friendly than people realise.
- Gifting from income, not just capital, can fall outside your estate straight away if it’s done regularly and doesn’t affect your standard of living.
- Consider AIM portfolios or Business Relief investments if you’re comfortable with higher risk. Some qualify for 100% IHT relief after two years.
Did you know?
Estate planning isn’t just for the ultra-wealthy. Once property and pensions are factored in, many households are closer to the IHT threshold than they think.
No matter which goal speaks to you most, the tools are often the same. The difference lies in how you use them, and that’s where advice makes all the difference.
Need Help Matching a Strategy to a Goal?
The building blocks of tax-efficient investing – ISAs, pensions, allowances – are mostly the same for everyone. But how you use them depends on your goals, your stage of life, and who else you’re investing for.
Trusted advisers have a keen eye for spotting any missed opportunities and are able to craft a bespoke plan for your very individual situation.
Call 020 8366 4400 or email enquiries@cedarhfs.co.uk to speak to one of our advisers.