Over time, tax-efficient investments can make a huge difference to the amount of wealth you accumulate, which in turn will impact your quality of life now and in the future.

There are several tax-efficient ways of investing, each with its own focus, benefits and risks. It’s wise to consult with a financial planner before you decide on a strategy, as they will advise you on the best approach for your current situation, priorities and goals for the future.

And because laws and practices relating to taxation are complex and subject to change, what works for you today won’t necessarily work for you tomorrow. Checking in with your financial planner every 12-months will therefore help you stay up to date, and on track.

Most people will have heard of Individual Savings Accounts (ISAs). These were introduced in 1999 to encourage people to save by offering generous tax breaks. There are now various types of ISAs for adults to choose from, including:

• Cash ISAs
• Stocks and Shares ISAs
• Innovative Finance ISAs
• Lifetime ISAs

There is even a Junior ISA for under-18s, which can take the form of a Cash ISA or a Stocks and Shares ISA.

Since their introduction, ISAs have proved popular, with over 40% of the UK population holding some form of ISA. Both Cash ISAs and Stocks and Shares ISAs continue to offer attractive options depending on your financial goals and risk tolerance.

In the current tax year, you can invest up to £20,000 a year without paying tax on your ISA investment (the limit is £9,000 for the Junior ISA). These limits will now remain frozen until April 2030. The capital you invest in an ISA is allowed to grow in a tax-free environment, meaning that any income – be it interest, dividends, or capital growth (from a Stocks and Shares ISA) – is exempt from tax.

The annual allowance – the maximum amount you can contribute to your pension while still enjoying full tax benefits – has increased in recent years from £40,000 to £60,000.

Additionally, the Money Purchase Annual Allowance (MPAA), which applies to people who have accessed their pension flexibly and want to continue contributing, has risen from £4,000 to £10,000 per year.

The Pension Lifetime Allowance (LTA), previously set at £1,073,100, has been abolished, allowing you to save as much as you like in your pension pot without incurring additional tax charges. However, the 25% tax-free lump sum is now capped at £268,275, equivalent to 25% of the previous LTA.

Self-Invested Personal Pensions (SIPPs) remain popular among experienced investors who want more control over how their pension is invested.

A VCT is a government scheme typically used by investors who are High Net Worth Individuals. They are intended to help small and medium-sized companies find investment. As such, they are deemed riskier than a pension or ISA – and that’s why VCTs come with some significant tax advantages.

A VCT is a listed company in its own right, which pools together investments in a number of qualifying businesses. Each VCT has its own VCT manager who identifies the opportunities and is responsible for managing the portfolio.

Investors can claim up to 30% tax relief on an annual investment allowance of £200,000, as long as they hold the investment for five years. Dividends are tax-free, and there is no Capital Gains Tax (CGT) to pay when you choose to sell – but once again, you must hold onto them for five years.

The main difference between a VCT and an EIS scheme is that with an EIS, the investor purchases new shares in a specific company. In contrast, the investment risk in a VCT is spread across a number of companies, making it slightly less risky in principle.

With an EIS, you will still receive 30% tax relief on your investment and any growth in value is 100% tax-free. However, the annual investment allowance rises to £2 million, and the time you need to hold the shares reduces to three years in order to receive the full tax benefits.

In addition, to further reduce the risk, EIS shares are eligible for tax relief on any losses on the net amount invested. This could potentially reduce your total overall exposure to 38.5% of the original investment.

SEISs are the most recent investment scheme introduced by the government. Launched in 2012, they provide support for the first £250,000 of external equity capital a new business raises within its first two years of trading (increased from £150,000).

A SEIS presents the highest level of risk for an investor. This is offset by the fact that investors will receive 50% income tax relief upfront, and reinvestment relief that allows investors to reclaim 50% relief on a reinvested gain. This, along with the similar capital gains exemption as a VCT and EIS, brings the potential total exposure on the original amount invested to just 13.5%.

Investing in start-up businesses can be exciting and rewarding, but many start-ups fail, and others may not go on to achieve their initial growth aspirations. While the returns are potentially very lucrative, they need to be are carefully weighed against risks.

Compared to ISAs and pensions, venture capital and enterprise investment schemes come with much higher risks. They are generally suited to more experienced and adventurous investors who have sufficient income to benefit from the tax relief available.

But before investing a significant amount of money in any investment tool, it’s advisable to consult a financial planner. They will assess your appetite for risk, goals for the future, and current financial position to create a tax-efficient plan that suits your individual preferences and tax circumstances.