Since I started investing in around 2019, I haven't paid a single penny in Capital Gains Tax, Dividend Tax or tax on savings interest as part of my investing strategy. The government literally hates people like me.

That isn't because I've found a clever loophole, moved money offshore or employed an expensive asset manager.

It's because, from day one, I've built my portfolio around the UK's tax rules and made full use of the allowances that are available to every investor.

There is nothing complicated about my approach. In fact, it's deliberately simple. The less time I spend trying to outsmart the tax system and plan carefully within the rules, the more time my money spends compounding.

Every tax year, my number one priority is to fill my Stocks & Shares ISA.

The annual ISA allowance is currently £20,000, and every pound invested inside it can grow free from Capital Gains Tax and Dividend Tax. That means if my investments double in value, I don't pay Capital Gains Tax when I sell them. If they generate dividends, I don't pay Dividend Tax either.

For long-term investors, that's an enormous advantage.

The longer your money compounds inside an ISA, the more valuable that tax protection becomes. That's why I always say:

Fill your ISA before you do anything else.

Once my ISA is full, I continue investing through a General Investment Account (GA). Unlike an ISA, a GA isn't protected from tax, so I use it differently.

My goal isn't to build an enormous taxable portfolio, instead, I aim to grow it to around £20,000.

Why £20,000?

Because that effectively becomes next year's ISA contribution.

When the new tax year begins, I transfer those investments into my ISA using a process called a Bed and ISA. Once my GA reaches approximately £20,000, I stop adding money to it.

Any additional investment capital is redirected elsewhere, which I'll come back to later.

Because investments held in a General Investment Account can generate taxable income, I try to keep things as tax-efficient as possible.

One way I do that is by investing in globally diversified funds that have relatively modest dividend yields rather than income-focused investments. I.e., the fund naturally pays a low amount of dividend income.

For example, the Vanguard FTSE Developed World UCITS ETF (VHVG) provides exposure to thousands of companies around the world while historically offering a relatively low dividend yield compared with many higher-income funds.

My objective is to keep the dividend income generated by my General Investment Account below the annual Dividend Allowance, which is currently £500.

Dividends received above that allowance are taxed according to your Income Tax band:

Because my General Investment Account is intentionally kept relatively small and invested in lower-yielding global funds, I've remained below the Dividend Allowance so far.

I also keep an eye on Capital Gains Tax. The annual Capital Gains Tax exemption is currently £3,000.

Where appropriate, I realise gains within that annual exemption before transferring investments into my ISA. By making sensible use of the available allowance, I've avoided paying Capital Gains Tax while steadily moving more of my portfolio into tax-efficient wrappers.

Bed and ISA is one of the simplest investing strategies you've probably never heard of.

When the new tax year begins, I sell investments held inside my General Investment Account and immediately repurchase the same or similar investments inside my Stocks & Shares ISA.

From an investment perspective, very little changes. I still own the same investments. The only difference is that they're now sitting inside a tax-free wrapper.

Every April, another £20,000 of my portfolio moves from a taxable account into my ISA.

Year after year, more of my wealth becomes protected from future Dividend Tax and Capital Gains Tax.

It's a remarkably simple habit, but over decades it can make a significant difference.

Cash can also create a tax bill.

Interest earned on savings becomes taxable once you exceed your Personal Savings Allowance.

Currently, basic-rate taxpayers can earn £1,000 of savings interest tax-free each year, while higher-rate taxpayers receive £500. Additional-rate taxpayers don't receive a Personal Savings Allowance.

Rather than allowing large amounts of cash to accumulate in savings accounts, I generally keep cash holdings to a minimum.

Money is either invested, waiting for a planned investment, or earmarked for the next ISA contribution.

Once my General Investment Account reaches around £20,000, I stop contributing to it.

The next priority is simply waiting for the new tax year so I can move those investments into my ISA. If I have additional money to invest before then, I redirect it elsewhere.

For me, that usually means increasing contributions to my Self-Invested Personal Pension (SIPP), continuing to build my fine wine portfolio or adding to my small Bitcoin allocation.

Each serves a different purpose within my overall portfolio, but they all come after my ISA and General Investment Account. My order of investing never changes:

Then, when the next tax year begins, I repeat the process all over again.

People often assume that paying less tax requires complicated financial planning.

In my experience, it doesn't.

It simply requires understanding the rules and using the allowances that already exist.

By prioritising my ISA, using my General Investment Account as a temporary holding account, managing dividends and capital gains sensibly, carrying out a Bed and ISA every year, and keeping unnecessary cash to a minimum, I've legally paid £0 tax on my investments so far.

Will that always be the case?

Perhaps not. Tax rules change, allowances can be reduced, and my portfolio will hopefully continue to grow.

But whatever happens in the future, one principle will never change. The more money I can keep invested, the harder compounding can work.

And that's exactly what long-term investing is all about.

The Compounder
Long-term investing made simple.

The Compounder is for financial education and commentary only. I am not authorised or regulated by the Financial Conduct Authority and I do not provide financial advice, investment advice, or personal recommendations. Nothing published here should be taken as a recommendation to buy, sell, hold or switch any investment, fund, pension, ISA, crypto asset or financial product. Always do your own research and consider speaking to an FCA-authorised financial adviser if you are unsure.