The ISA tax shield: Capture emerging markets growth – not a tax bill

The annual ISA deadline doesn’t always feel like a big moment. But it could be a way to invest that saves you from a tax bill in the future, particularly as your portfolio grows over time.

That’s because an ISA shields your investments from UK income tax and capital gains tax (CGT). CGT is the tax you pay on the profit when you sell an investment that has increased in value. Everyone has a small annual CGT allowance, but gains above that can be taxed.

Your ISA allowance works differently. Each tax year you can invest up to £20,000, and if you don’t use that allowance, you lose it. Starting early – even with smaller amounts – gives your money more time to grow free from tax.

Take a simple example. Imagine investing £20,000 and, over time, it grows to £500,000. That’s a gain of £480,000. Growth of this scale is the result of compounding over long periods, where returns build on previous returns.

Outside an ISA, that gain could be subject to CGT. Based on current higher-rate CGT levels of 24%, and after using your annual allowance, this could result in around £95,000 potentially payable in tax, depending on individual circumstances and future tax rates. Inside an ISA? The tax bill is zero. That’s the power of tax efficiency. And it matters most when growth is meaningful.

Long-term investing can feel abstract – until you look at real numbers. Templeton Emerging Markets Investment Trust (TEMIT), launched in 1989, provides a powerful illustration of ‘compounding’ in action. Compounding simply means your returns start generating returns of their own – growth building on growth over time.

A £20,000 investment at launch, held to today, would now be worth over £1.2 million. That’s possibly more than many could earn over an entire working lifetime.

No one can guarantee that outcome again – it could be lower or higher. But the principle is clear: combine time, growth, and tax efficiency – and the results can be transformational. Importantly, that growth didn’t happen by chance. It reflected decades of expansion across emerging economies as they industrialised, urbanised and innovated. And many of those structural forces are not slowing – they are accelerating.

To give yourself the best chance to make that kind of sustained long-term growth in the future, it helps to look at where it is taking place today.

Emerging markets – dynamic economies including China, India, Brazil, Taiwan, and South Korea – generate around 65% of global growth, and that share could increase further in the years ahead.¹ They are home to younger populations, expanding middle classes, and companies shaping the industries of tomorrow – from semiconductors to electric vehicles, digital payments to clean energy.

For someone starting out, this backdrop could represent a significant source of opportunity over time. Capturing that opportunity depends on how you invest in it. Emerging markets are diverse and dynamic, and translating that economic story into portfolio returns requires choosing the right companies within it.

Templeton Emerging Markets Investment Trust (TEMIT) offers exposure to 60–80 carefully selected emerging market companies, supported by on-the-ground research teams and more than 35 years of experience investing across these markets.

Through TEMIT, your ISA can gain exposure to companies shaping the future of the global economy, including:

• Samsung*, a global leader in advanced electronics
• TSMC*, the backbone of the global semiconductor industry
• BYD*, one of the world’s largest electric vehicle manufacturers
• MediaTek*, powering connected devices worldwide
• Itaú*, a leading bank serving Brazil’s expanding middle class

* The information provided is not a recommendation to purchase, sell, or hold any particular security and should not be construed as an endorsement of or affiliation with Franklin Templeton.

These are global giants – competitive companies at the forefront of structural global trends – innovation, electrification, digitalisation, and rising consumption.

For an investor building an ISA portfolio, that combination of long-term growth and tax efficiency can be powerful.

The ISA deadline might feel like just another date in April. But it’s not about this year. It’s about every year that follows. Every unused allowance is a year of tax-free compounding lost. So now may be the time to begin. And give your future self more of what you earn.