Costs, tax wrappers and compounding: keeping more of what you make

Investors spend a lot of energy trying to pick winners. Two far more reliable levers - keeping costs down and using tax wrappers well - get much less attention, yet they are largely within your control. Combined with time, they make a striking difference to what you end up with.

Every fund and platform charges fees. Individually they can look trivial - a fraction of a percent here and there - but they compound against you year after year, just as growth compounds in your favour. Over decades, the difference between a low-cost and a high-cost approach can amount to a large share of your final pot. You cannot control what markets do, but you can control what you pay, so it is worth knowing your total cost of investing and questioning anything that does not earn its keep.

The same investment can be taxed very differently depending on the 'wrapper' it sits in. The three most common are:

• ISAs: growth and income inside an ISA are free of Income Tax and Capital Gains Tax. The overall ISA allowance is £20,000 for 2026/27. From April 2027, an individual under 65 will be able to place no more than £12,000 of that overall allowance into cash ISAs; any unused balance may be allocated to other ISA types. There is not a separate additional £20,000 Stocks & Shares ISA allowance.
• Pensions: contributions attract tax relief and the money grows tax-free, though you generally cannot access it until later life and most withdrawals are taxable.
• General investment accounts: no special tax treatment, so gains and income can be taxable - but useful once ISA and pension allowances are used up.

For many people, the sensible order is to capture any employer pension match first, then use ISA and pension allowances according to their goals, and only then invest in a taxable account.

Recent changes have made sheltering investments more valuable. The Capital Gains Tax annual exempt amount is now just £3,000, and gains above it are taxed at 18% or 24%. The dividend allowance is only £500, and dividend tax rates rose from April 2026. From April 2027, tax rates on savings interest are rising too. Each of these makes an ISA or pension - where none of this applies - more attractive relative to holding the same investments in a taxable account.

A common tidy-up is 'Bed and ISA': selling investments held in a taxable account and repurchasing them inside your ISA, moving future growth into the tax-free wrapper. The sale can crystallise a taxable gain and may involve dealing costs, bid-offer spreads and a period out of the market before the investment is repurchased, so the timing and available allowances need to be considered carefully.

Compounding is the engine that rewards patience: returns earn returns, which earn further returns, and the effect accelerates the longer you leave it. Low costs and tax efficiency simply mean more of your money stays in that engine. None of this is exciting, and that is rather the point - the boring levers are the dependable ones.

We review what you're really paying, place your investments in the most efficient wrappers, and help you use each year's allowances before they're lost.