Tax efficient investments for business owners. What are the options? What are the benefits? As a business owner, managing your finances isn’t just about running a profitable company.
Moreover, it’s about investing your money and surplus capital wisely and tax-efficiently. As a result, learning about the different types of tax efficient investments for business owners is key to building wealth and mitigating taxes.
With the right tax efficient investing strategies, you can reduce taxes, potentially increasing long-term returns, and protect your wealth.
Tax efficient investing for business owners – what you will learn
To help boost your knowledge of this topic, our guide explores the most effective tax efficient investment options for company owners, tailored to UK tax rules and business structures.
Key takeaways for company owners
- Pensions (SIPPs and SSAS) offer significant tax relief and flexibility, allowing both personal and business contributions to grow tax-free.
- EIS, SEIS, and VCTs provide opportunities for high-risk, high-reward investments with generous tax benefits, including income tax relief and CGT exemptions.
- ISAs offer a simpler route for tax-free growth on personal investments, making them a powerful tool for building long-term wealth.
- Corporate investing allows your business to invest surplus profits, which can lead to tax-efficient returns while supporting the growth of your business.
- Employee Ownership Trusts (EOTs) offer an exit strategy with substantial tax benefits, all while empowering employees and maintaining the company’s legacy.
- Profit extraction strategies such as dividends and pension contributions help reduce personal and corporate tax liabilities while securing long-term financial health.
Why tax efficient investing matters for business owners
Tax efficiency for business owners isn’t just about accountants finding ways to reduce company taxes.
Additionally, when it comes to building wealth and accumulating assets, financial advisers play an important part in helping company owners to invest their capital tax efficiently.
Are you overpaying tax?
Surprisingly, many business owners unknowingly overpay tax on profits, dividends, or investment income.
Altogether, this is simply because they haven’t explored or know about the most efficient investment options for business owners and company directors.
Being proactive with how you use your company’s surplus capital can:
- Reduce personal and corporate tax bills
- Maximise long-term compounding
- Enable smarter profit extraction from your company
What are the tax saving investment options for business owners?
Now let’s take a closer look at the different ways business owners can invest tax efficiently, covering:
- Pensions
- Venture capital
- ISAs
- Corporate investing
- Philanthropic gifting
Using pensions contributions to mitigate taxes
First, we take a look at how pensions offer business owners a tax efficient way of investing and mitigating taxes.
In this section we cover:
- Self invested personal pensions
- Small self administered schemes
Self-Invested Personal Pensions (SIPPs)
SIPPs offer flexible retirement savings with generous tax relief:
- Personal contributions get up to 45% tax relief depending on your income
- Investments grow tax-free inside the pension wrapper
- Funds are accessible from age 55 (rising to 57 from 2028)
For business owners, pension contributions can also be made via the company, reducing your corporation tax bill.
Example: Tom, a 42-year-old business owner, contributes £30,000 to his SIPP from company profits. He receives 45% tax relief, reducing his corporation tax bill and building a pension pot that grows free from capital gains or income tax
Related reading: Is a SIPP better than a personal pension
Small Self-Administered Schemes (SSAS)
A SSAS offers even more control:
- The pension can lend money to your own business
- Can purchase commercial property (e.g. your office or warehouse)
- Comes with tax benefits, but higher admin responsibility
Example: Sophie, who runs a design firm, sets up a SSAS to buy her office premises through her pension. This gives her business a stable location and her pension fund a rental income stream — both tax-efficient.
Tax-advantaged investments for business owners: EIS, SEIS, and VCTs
Now let’s take a closer look at how venture capital schemes are a solid tax efficient investment option for company owners.
Enterprise Investment Scheme (EIS)
The EIS is ideal for high-income, tax efficient business owners looking to:
- Invest in early-stage UK companies
- Get 30% income tax relief
- Defer or eliminate Capital Gains Tax (CGT)
Hold the shares for 3+ years and gains are tax-free. Loss relief also helps reduce downside risk.
Example: Daniel sells a commercial property with a large gain and reinvests £100,000 into an EIS startup. He defers the CGT, receives 30% income tax relief, and the investment is exempt from CGT if held for 3 years.
Seed Enterprise Investment Scheme (SEIS)
SEIS is aimed at even earlier-stage startups and offers:
- 50% income tax relief
- Up to £100,000 annual investment
- CGT reinvestment relief
It’s higher risk but extremely generous from a tax efficient investment perspective.
Example: Priya invests £50,000 in a qualifying SEIS tech start-up. She claims £25,000 in income tax relief and reduces her CGT bill by reinvesting previous gains, with added loss relief should the business fail.
Venture Capital Trusts (VCTs)
VCTs are listed funds investing in fast-growing UK businesses:
- 30% income tax relief (up to £200,000)
- Tax-free dividends and capital gains
- Shares must be held for 5 years
For business owners, these are a way to diversify and access growth — with less admin than EIS/SEIS.
Example: Richard allocates £150,000 into a VCT. He receives £45,000 in income tax relief, enjoys tax-free dividends, and benefits from long-term capital growth.
ISAs: Saving simplicity meets tax efficiency for business owners
An Individual Savings Account (ISA) lets you invest up to £20,000 per year in:
- Stocks and shares
- Cash savings
- Investment funds
All income and gains are free from income tax and CGT.
While ISAs aren’t business-specific, they’re a great way for directors to build personal, tax-efficient wealth.
Example: Ella draws £20,000 in dividends, which she transfers into a Stocks & Shares ISA each year. Over 10 years, her investment grows free from dividend tax and CGT, forming a tax-free safety net.
Corporate investing: Making surplus profits work harder
Many successful business owners leave profits in the company after taking salary and dividends. If that capital is idle, you could:
- Invest it through the business in property, shares, or bonds
- Keep gains inside the company (subject to corporation tax)
You’ll need to consider:
- Whether the investment changes your trading status
- The impact on Business Asset Disposal Relief (BADR) eligibility
This strategy works best when the company has consistent profit and cash reserves.
Example: Ben’s company has £250k in surplus. Instead of paying it out and incurring personal tax, he invests it through the company into low-risk bonds and a S&P 500 tracker, growing capital while managing tax exposure.
Employee Ownership Trusts (EOTs)
An EOT allows a business owner to sell shares to an employee trust:
- No capital gains tax on the sale
- Up to £3,600 tax-free bonuses can be paid annually to employees
- Maintains the legacy and stability of the company
This is a longer-term strategic move that can be part of a retirement or exit plan, with serious tax advantages
Example: Angela sells her successful manufacturing business to an EOT. She pays no CGT on the sale and ensures the business continues with employee engagement and legacy intact.
Tax efficient profit extraction options for business owners
How you take money out of your company matters:
- Dividends (lower tax than salary)
- Pension contributions (corporate and personal)
- Loan repayments (if directors have lent money to the company)
- Asset purchases (e.g. a business-use vehicle)
An accountant can help you model out the most tax-efficient combination for your circumstances.
Capital allowances and reinvestment in the business
Instead of pulling out profit, you can reduce your taxable income by:
- Investing in plant, machinery, or equipment
- Claiming 100% Annual Investment Allowance (AIA) on eligible purchases
This not only reduces tax but helps grow the business too — a double win.
Gifting to charity – a tax efficient option for business owners
Making donations through your limited company can be both rewarding and tax-efficient:
- Donations to registered UK charities qualify for corporation tax relief
- Gift Aid allows individuals to claim additional tax relief on personal donations
- Large philanthropic gifts can also play a role in estate planning
Ensure your donations meet HMRC criteria and are structured correctly — especially if part of a long-term giving strategy.
Example: Faisal’s company donates £20,000 annually to local charities. The donations reduce corporation tax liability while enhancing community reputation and employee pride.
Final thoughts on tax efficient investments for business owners
As you should now know, tax planning and investing for company owners isn’t just about saving money. Moreover, it’s about building wealth smartly and sustainably.
Hopefully, by learning about the different types of tax efficient investments for business owners, you will make smarter financial decisions, and retain more of your profits and put them to work.
If in doubt, speak with a qualified financial planner or accountant to ensure your investment choices are aligned with your business goals, capacity for loss, risk tolerance, and personal tax position.
Next steps on your tax efficient investment journey:
- Consider consulting with a professional to assess which of these tax saving strategies fits best with your business structure and financial goals.
- Regularly review your tax-efficient investments and financial strategies to ensure they align with changes in tax laws and your business trajectory.
- Start planning early to ensure that you take full advantage of the available tax reliefs and optimise your investment returns.
Remember, proactive tax planning today can pay dividends tomorrow.
These tax efficient investments for business owners, you not only help protect your wealth from taxes, but actively create opportunities for capital growth and security.