Many investors do not make the most of their capital gains tax allowance – you needn’t be one of them.  The tax advantage of seeking capital growth - rather than interest - is that you can enjoy a tax-free profit every year (as long as there is investment growth).

Let’s compare the net investment return offered by a deposit account with an investment in a growth fund.

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Depending on the investor’s income tax position the growth fund only needs to return 3% or 4% to match the after-tax return of a deposit account.

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With your ISA allowance you can take full advantage of the tax-free return on bonds. This can provide a real boost to the return when compared to a standard taxable deposit account. And as a higher rate taxpayer you’ll find your savings can be even greater. 

The income from your ISA does not need to be reported on your tax return, so you can save on administration time and costs too.

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Pension contributions are an extremely tax efficient way to boost your retirement income with reduced outlay since you benefit from tax relief on the contributions at your highest marginal tax rate.

Your pension fund has the same tax privileges as an ISA investment, and it is exempt from capital gains tax (CGT), and income tax. It may also be free of Inheritance Tax (IHT).

On retirement, you can take a quarter of your pension fund as a tax-free lump sum. You can then use the remaining balance to buy a guaranteed income for life. Alternatively you can leave it invested and use it to provide an income called ‘unsecured income’.

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You no longer have to buy an annuity. You have the freedom to withdraw a tax-free lump sum and leave the rest of the fund to accumulate. You can also pass on your pension fund to the next generation of your family, if you wish.

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