Multi-wrapper tax planning in accumulation
Last updated 15 October 2025
Effective tax planning is a continuous process. It doesn't end once the initial investment wrapper is chosen. As tax allowances refresh each year, it could be a chance to extract some savings free of tax. It could also create further opportunities to move more savings into tax privileged investments such as pensions and ISAs.
Tax reduces returns, leaving less to reinvest and accumulate over time. Maximising available tax allowances is an effective way of reducing the tax drag on investments, offering greater potential to accumulate wealth.
Tax planning comes down to three simple steps.
- Review – determine whether clients have used all of their tax allowances, including those of their spouse or civil partner
- Reuse – assess the feasibility of extracting profits from existing investments within unused allowances
- Recycle – where possible, recycle the savings into something more tax-efficient
Review
The tax year end is an opportunity to review all the tax planning which has been done throughout the year. Only at the end of the year do we have all the facts. It provides one last chance to make sure that clients have maximised their reliefs and allowances.
Armed with the knowledge of a client's income from all sources and what capital gains they have realised over the tax year, it becomes possible to identify which of their tax allowances may still be available to them.
Reuse
Allowances not fully used each year will go to waste. This could mean that profits build up, and when eventually taken, may only benefit from a single year's allowances.
Realising gains up to the annual CGT allowance could reduce the tax liability when withdrawals are needed. Basic rate taxpayers with assets subject to CGT could be storing up tax charges of £540 a year or £720 a year for higher rate taxpayers (£3,000 @ 18% / 24%) if they don't make use of their CGT allowance.
For many investors, there is as much as £22,070 of allowances up for grabs this year. So, there is plenty of scope to take income and extract profits tax-efficiently.
Investment wrapper | Available allowances |
|---|---|
ISA | All income and gains tax-free |
Collectives | Income tax |
Offshore bonds | Income tax |
Onshore bonds | No allowances available but 20% notional tax credit means further tax is only payable if gains exceed basic rate threshold. |
For those eligible for the starting rate band for savings, up to £18,570 of savings income can be taken tax-free in 2025/26. This rises to £19,070 of tax-free allowance if the client also has dividend income.
Recycle
Although a client may have no immediate spending plans, they could still use their allowances to withdraw funds tax-free and reinvest into something more tax-efficient. Moving assets tax-efficiently between tax wrappers can not only improve future investment returns but could also increase what is available to family members on death.
There's a natural order to saving tax-efficiently. Putting aside other considerations such as accessibility, this is:
- Tax-relieved savings. Pension contributions attract tax relief at the highest marginal rate. The combination of tax relief on contributions, tax-free investment returns and the ability to take a quarter of the fund tax-free means pensions will, like for like, outperform other investments for most savers. So, pension funding should be maximised before considering other savings opportunities. Most pension death benefits are currently IHT free but will form part of the taxable estate from April 2027.
- Tax-free savings. ISAs provide a fund which is free of income and capital gains tax on investment returns within the fund, in a similar way to pensions. Pensions will still have the upper hand for most when saving for retirement, while ISAs provide an accessible fund prior to the minimum retirement age.
- Potentially tax-free savings. Once pension and ISA allowances have been fully used, it may still be possible to continue to save in a tax-efficient way by making use of the available tax allowances. It is possible that gains and dividends from a portfolio of collectives can be managed within the annual allowances available. Gains from offshore bonds can also be tax-free if it is possible to realise gains when the bond owner is a non-taxpayer.
- Taxable savings. If every opportunity to save tax-free has been exhausted, then other savings which will be taxable can then be considered.
Pensions and ISA have obvious tax advantages over other investment wrappers. Consequently, the amount that can be paid into them each year is capped.
For those saving towards retirement, pensions are the most tax-efficient wrapper where the rate of tax relief on contributions is greater or equal to the income tax on withdrawals. The table below considers a £10,000 pension v ISA investment:
Tax rate when paid in/tax on withdrawal | Gross amount invested in pension | Pension return after tax | ISA return | % increase |
|---|---|---|---|---|
45%/40% | £18,182 | £12,727 | £10,000 | 27.27% |
45%/20% | £18,182 | £15,455 | £10,000 | 54.55% |
40%/40% | £16,667 | £11,667 | £10,000 | 16.67% |
40%/20% | £16,667 | £14,167 | £10,000 | 41.67% |
20%/20% | £12,500 | £10,625 | £10,000 | 6.25% |
These figures are based on headline rates of tax. The true effective rates of income tax in retirement are likely to be much lower.
Regular savers may never need anything more than a pension and an ISA. But sometimes they may have a lump sum to invest which exceeds their pension and ISA allowances and need to invest in taxable savings such as a collective or investment bond.
If pension and ISA funding hasn't been maximised, they could be topped up from the sale of collective funds, an approach known as "bed and ISA" or "bed and SIPP". Selling funds and repurchasing the same fund via an ISA or SIPP doesn't trigger the 30 day share matching rules.
A similar approach could be used by non-taxpayers to take the profits from investment bonds. With many bonds arranged as a series of identical mini policies, it is possible to surrender sufficient segments to keep gains within the tax-free allowances.
Offshore bond gains of up to £18,570 can be taken tax-free this tax year provided the gain when added to earned income and other savings income does not exceed this limit.
There are no tax-free allowances available for onshore bonds because of the 20% credit for tax paid within the fund. However, it does mean that top sliced gains which do not fall into the higher rate tax band do not suffer any further tax. And recycling these into a pension or ISA would mean that future investment growth benefits from gross roll up.
Even ISA savings can be moved to pensions if access is not a priority and if there are available allowances.
Couples financial planning
Including a spouse/civil partner in the financial planning process also has the potential to double the available allowances and improve the overall tax-efficiency of a portfolio. There is an opportunity to transfer savings or investments to a partner in a lower tax bracket to reduce taxes on an ongoing basis and on encashment.
The marriage allowance also allows a non-taxpayer to transfer £1,260 of their unused personal allowance to their spouse/civil partner if they are a basic rate taxpayer. It can be backdated for up to four years too, offering a potential increase in the personal allowance of £1,260 for each tax year eligible.
Summary
Tax planning is great way in which advisers can demonstrate the value of their advice. Reducing the tax drag on investments can help grow the capital value and sustain the portfolio when income is needed or leave a greater inheritance.