In this article, we’ll explore five of the most common tax free savings and investments for business owners. In summary, we explain how they work, and highlight why they matter for entrepreneurs looking to reduce taxes and build wealth in the UK.
For clarity, the term ‘tax-free’ is used to highlight how certain savings and investment options are free from certain types of taxes.
For example, pensions offer tax-free growth, but are taxed on withdrawals.
Furthermore, Venture Capital Trusts are free from dividend tax, but must be held for the qualifying period.
The importance of tax free savings and investments for business owners
Tax-free doesn’t mean too good to be true. It’s about selecting the best tax efficient investments for business owners that can reduce certain taxes.
It means taking advantage of tax efficient ways of investing, under HMRC-approved schemes.
For directors and owner-managers, tax efficiency is more than a technicality. It can directly impact how much you keep, reinvest, or draw from your business each year.
Whether you’re planning for retirement, saving for personal goals, or looking to reinvest with a lighter tax burden, these five tax saving options for company owners are worth your attention.
Maximising investment growth & mitigating taxes
As a business owner, maximising investment returns, coupled with reducing tax is one of the smartest financial decisions you can make.
But while most investment returns are taxed in some way, there are still a handful of legitimate, tax-free options that can help you build wealth more efficiently.
Five tax free savings and investments for business owners?
Now, let’s take a closer look a these five tax saving investment strategies for business owners and company directors.
We cover:
- Stocks and shares ISAs
- Cash ISAs
- VCTs
- Premium bonds
- Pension contributions
First, let’s start with stocks and shares ISAs.
1. Stocks of and Shares ISA
Every UK adult can invest up to £20,000 per year into a Stocks and Shares ISA. In summary, any growth, dividends, or withdrawals are completely tax-free.
How these ISAs help business owners to save tax:
You can use personal income or dividends to fund your ISA, shielding those funds from capital gains tax (CGT) or dividend tax.
Over time, this becomes a powerful compounding tool.
2. Cash ISA
For lower-risk investors, a Cash ISA provides a tax-free alternative to savings accounts. Interest earned is not subject to income tax.
How Cash ISAs reduce taxes for company owners:
If you’re drawing income from your business and looking for a secure place to hold it (e.g. for a property purchase), a Cash ISA can offer peace of mind with zero tax liability.
3. Venture Capital Trusts (VCTs)
VCTs are listed investment companies that invest in small UK businesses. If held for at least 5 years, dividends and capital gains are completely tax-free.
Are VCTs a good investment for business owners?
You receive 30% upfront income tax relief (up to £60,000), plus tax-free dividends. This is ideal, especially if you have high income and want long-term, tax-efficient yield.
4. Premium Bonds
Issued by NS&I, Premium Bonds offer tax-free prize draws instead of interest. While returns are variable, any winnings are tax-free.
Why Premium Bonds work for business owners:
They offer capital protection with the chance of occasional tax-free wins.
While not an investment in the traditional sense, they suit conservative investors with cash buffers.
5. Pension contributions (via company funds)
Though technically not “tax-free,” pension contributions from your business are highly tax-efficient.
They’re deductible against corporation tax, and the investment grows free from income or capital gains tax until accessed.
How do business owners use pensions to save tax?
Simply, by paying into a pension using company money.
Altogether, you reduce your company’s tax bill, grow personal wealth, and defer personal taxation until retirement.
Tax free savings and investments for business owners – summary
There may not be many fully tax-free savings and investments for business owners, however, the five mentioned in this article, will help to achieve real tax savings.
Tax advantage of compound interest as the earlier you start investing, the more your wealth grows over time.
Whether you’re cautious or growth-focused, tax efficiency plays a critical role in long-term wealth building
And, understanding the best tax free savings and investment options is step one