Spring is the time for a fresh start, for getting organised and for making plans for the rest of the year and beyond.
Itโs also the start of a new tax year. Which makes it the ideal time to consider including investments in your planning, especially as you have a new ยฃ20,000 ISA allowance to use.
At Continuum we are looking at the potential for investment in Stocks and Shares ISAs for the 2025/26 tax year.
Why ISA?
ISAs are potentially a great way to put your money to work for you because they combine three key features. The chance to take a long-term view, compound interest and above all, valuable tax efficiency.
- A long-term perspective: Investing naturally comes with its ups and downs. While short-term fluctuations could lead to temporary losses, the overall trend of investments is to generate long-term growth, assuming you can stay invested forย 5 years or more. You can choose to keep your investment in an ISA indefinitely (and even contribute to it annually) to benefit from this long-term growth. By all means monitor your investment's performance, but although there are no guarantees, you might find that you can simply relax and watch it grow.
- Compound interest:ย If your ISA investment produces returns, next year, those returns could also be working to produce returns for you. This is the wonder of compound interest. Instead of the same returns on your investment each year, you can potentially look forward to returns that steadily grow larger.
- Tax efficiency: With an ISA there is no income tax to pay on profits, no dividend tax and no capital gains tax to pay when the time comes to sell.ย Other types of investment can mean a tax bill, and recent changes to capital gains and dividend allowances mean those bills can be larger than in previous years. With an ISA, your profits go back into your investment pot, not to the taxman.
Donโt forget your pension
While your ISA allowance is a great way to grow your wealth tax efficiently, your pension could offer even more powerful benefits โ especially for higher-rate taxpayers.
For the 2025/26 tax year, the annual pension allowance remains at ยฃ60,000 (or 100% of your earnings, if lower), and contributions may benefit from tax relief at your highest rate of income tax. This means a ยฃ1,000 contribution could effectively cost just ยฃ600 if you're a higher-rate taxpayer โ a powerful incentive to top up your pension before the end of the tax year.
Pension savings also grow free from income tax and capital gains tax. Combining ISA and pension strategies could create a tax-efficient plan both for the short and long term. As part of your future plans, you may wish to take into consideration that from April 2027 your unused pensions will form part of your estate as announced by the Chancellor in her Autumn 2024 Budget.
Other allowances to make use of
Tax efficiency doesnโt end with ISAs and pensions. You could consider other valuable allowances worth building into your financial plan this year:
- Junior ISAs (JISAs): You can invest up to ยฃ9,000 per child into a Junior ISA, giving them a head start on long-term savings โtax efficiently
- Annual Gift Exemption (Inheritance Tax): You can give away ยฃ3,000 per year without it affecting your estate for inheritance tax purposes. If you didnโt use it last year, you can carry it forward, allowing up to ยฃ6,000 of tax-free gifting this year.
- Marriage Allowance: If one partner is a non-taxpayer, they can transfer ยฃ1,260 of their personal allowance to their spouse or civil partner, reducing the coupleโs tax bill by up to ยฃ252.
At Continuum, we can help ensure youโre making full use of all your available allowances โ and putting them to work in a clear, cohesive strategy designed to help you meet your goals.
To start planning your new tax-efficient investment strategy for the 2025/26 tax year, call us today.
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The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Investors in ISAโs do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
The Financial Conduct Authority does not regulate taxation and trust advice or will writing.
Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances. We recommend that the investor seeks professional advice on personal taxation matters.
