Are General Investment Accounts Still Worth It? Tax Changes, Strategies, and Pension Pairing Explained
Even with reduced allowances, GIAs can still be highly effective — pairing them with pension contributions can cut dividend and capital gains tax rates to basic-rate levels
The once-popular General Investment Account (GIA) has come under pressure in recent years.
A GIA is a straightforward taxable investment account. You can hold almost anything – from individual company shares to global funds, bonds, or investment trusts – but unlike an ISA say, any income or gains are liable to tax.
It used to be seen as the natural next step for those who had already maxed out their ISA allowance and perhaps their pension contributions too. Its appeal lay in its flexibility - wide investment choice and no restrictions on withdrawals. However, it’s become a punching bag for tax changes:
Dividend Allowance – Back in early 2018, you could earn up to £5,000 a year in dividends before paying tax. Today, that allowance is just £500.
Capital Gains Tax (CGT) allowance – In 2022/23, you could make £12,300 of gains before paying CGT. Two cuts later, it’s just £3,000.
CGT rates – If realised gains on investments fall within the basic-rate tax band, the rate has risen from 10% to 18%. If they push you into higher-rate territory, the rate has gone from 20% to 24%.
With these squeezes, it’s no surprise many people are questioning whether GIAs are still worthwhile — especially when other options like mortgage overpayments, investment bonds, or tax-advantaged investments such as VCTs (Venture Capital Trusts) and EISs (Enterprise Investment Scheme shares) are available.
When investing, your capital is at risk. The value of your investment (and any income from them) can go down as well as up, and you may get back less than you invested, particularly where investing for a short timeframe (we usually recommend a horizon of at least 5 years).
Why GIAs Still Have a Place
If you’re a higher-rate taxpayer, there’s no denying GIAs aren’t as appealing as they once were. But for basic-rate taxpayers, the tax rates are still fairly modest:
Dividends: taxed at 8.75% after the £500 tax-free allowance
Capital gains: taxed at 18% on amounts within the basic-rate band
This is why GIAs can still work well in certain situations — for example:
Retirees with little or no other taxable income
Children, via a Bare Trust (though parents need to watch the Parental Settlement Rules; using a grandparent can avoid these)
Couples where one partner is a lower earner or homemaker, the smart move is often to hold more of the GIA in their name. This keeps the investment income and gains taxed at their lower rates, making the overall household position more tax-efficient.
GIA + Pension Contribution
But even if your income would normally put you into higher-rate tax, there’s often a way to keep more of your GIA returns taxed at basic-rate levels — by making pension contributions.
That’s because paying into a pension effectively increases your basic-rate tax band by the gross amount of the contribution. This allows more of your investment income and gains to be taxed at the lower rates of 8.75% (dividends) and 18% (capital gains) instead of the higher rates of 33.75% and 24%.
A pension is a long-term investment, and funds are not normally accessible until 55 (rising to 57 from April 2028). When investing via a pension, your capital is at risk. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
A Worked Example
As always, this is best explained by way of an example.
Take Charlie and Penny:
Charlie earns £500,000 a year (salary + bonus), making him an additional rate taxpayer (45% income tax). Under the tapered annual allowance rules, his pension contributions are limited to £10,000 a year.
Penny earns £80,000, so she’s a higher-rate taxpayer, but she can still pay the full £60,000 a year into her pension (plus any unused allowance from previous years).
They jointly own a GIA worth £500,000, producing £10,000 a year in dividends (2% yield) and with £120,000 of unrealised capital gains.
Without any planning, they would face:
Dividend tax: £9,000 taxable after their two £500 allowances, with half taxed at 33.75% and half at 39.35% = £3,290
Capital gains tax: 24% on any realised gains above their combined £6,000 annual CGT allowance
However, we could significantly improve the tax efficiency of this investment via the following:
Move the GIA into Penny’s sole name. Because they’re married, this transfer can be made without triggering tax. Penny takes on Charlie’s share at its original base cost — effectively shifting the point of taxation to her.
Penny contributes £60,000 gross into her pension. This effectively expands her basic-rate tax band from £50,270 to £110,270 (the gross amount of the pension contribution).
The result is that Penny’s £9,500 of taxable dividends above the allowance now face 8.75% tax instead of 33.75%, saving £2,375. Furthermore, she can realise up to £20,270 of gains within the basic-rate band, paying 18% CGT (above the £3,000 exemption) instead of 24%.
In practice, the combination of GIA plus pension contribution can bring the overall tax rate on the GIA’s returns down into the low-to-mid teens — keeping it firmly in the “tax-efficient” zone.
Here’s a summary of the tax impact:
Conclusion
While GIAs have lost some shine, they’re far from redundant.
For many clients, the ability to blend them with pension contributions to preserve basic rate treatment keeps them firmly in the financial planning toolkit.
Happy Thursday!
Kind regards,
George
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Important Disclaimer
This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.
