High Earner? Invest Tax-Efficiently Like This

Tax is one of those avoidable facts of life. If you are a high earner, you will be well aware of this.

Many tax loopholes have closed over the last ten years, but there are still plenty of options for investing tax-efficiently.

16th September 2021

Pensions are one of the most tax-efficient investment options available. For example:

However, there are some limits to the relief, which are particularly relevant for higher earners:

Once you have maximised your pension allowance, ISAs should be your next port of call.

Of course, for a higher earner, £20,000 per year is relatively limited, and you may be looking for other investment options in addition.

Investment Bonds
Investment bonds (UK or offshore) can work well if you have a lump sum to invest. The advantages for a higher earner are:

Venture Capital Trusts (VCT)
VCTs are a higher risk investment option, but can be suitable for higher earners. They allow you to invest in a selection of smaller companies with high growth potential. You can invest up to £200,000 in VCTs during the tax year. The tax advantages are:

Enterprise Investment Schemes (EIS)
An EIS works in a similar way to a VCT, however it involves investing in just one company rather than several. In reality, many investors hold portfolios of EIS investments, which can help to spread the risk. You can invest up to £1 million in EIS investments per tax year, although an increased limit of £2 million applies if you invest in knowledge-intensive companies.

An EIS offers the following tax benefits:

Both EIS and VCT investments are extremely high risk, and are not suitable for everyone.

While saving tax is an attractive proposition, remember, it is not a goal in itself. You should never make investment decisions solely due to tax-efficiency, particularly if this involves taking higher levels of risk than you are comfortable with.

A financial planner can help you to create a strategy, placing your goals and objectives at the centre. Saving on tax is a by-product of good planning.

Please don’t hesitate to contact a member of the team to find out more about your investment options.

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