The Individual Savings Account (ISA) is a powerful tool that can help me bolster my long-term returns.

There are two I can choose from: the Stocks and Shares ISA and the Lifetime ISA. Both give me the opportunity to create wealth and shield it from the eroding effect of capital gains tax (CGT) and dividend tax.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Sure, these products place more restrictions on me than a General Investment Account (GIA). There are annual allowances, and the Lifetime ISA have restrictions on when I can withdraw my funds, for instance.

However, for me, the benefits they offer me in tax savings far outweigh the drawbacks. And with the Lifetime ISA, I get a handy cash injection by receiving tax relief, too.

More pain to come?

The importance of these tax wrappers is growing, too, as successive governments try to raise funds to fix the huge hole in public finances and boost investment in public services.

Dividend allowances — the amount investors can receive in dividends before tax is paid — has plummeted to just £500 a year.

Any dividends over this amount are charged at 8.75% for basic-rate taxpayers, and 33.75% and 39.35% for higher-rate and additional-rate taxpayers, respectively.

To add further strain on investors’ returns, the first Labour Budget for 15 years last week increased “the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%.” The annual allowance is £3,000, but many investors could be in for a shock when they finally sell their shares.

The worry for individuals is that further tax raids may be on the horizon. The Institute for Fiscal Studies (IFS) reckons the government will have to raise another £9bn in taxes to avoid fresh cuts to public services.

So the first step on my investing journey would be to open a Stocks and Shares ISA and/or a Lifetime ISA.

Here’s what I’d do next

With my tax wrappers set up, I’d be ready to start filling them with shares, funds, and exchange-traded funds (ETFs).

What I buy would depend on my investment goals and my attitude to risk. These differ from person to person, so there’s no blueprint as to what my portfolio should look like

However, an important general rule is to diversify across a number of different stocks. This way, I spread risk by not putting “all my eggs in one basket.”

So if I was beginning my investing journey, I’d consider opening a position in the BlackRock Greater Europe Investment Trust (LSE: BRGE). With holdings in 35 different companies, it gives me excellent diversification straight off the bat.

Key holdings include Danish pharma giant Novo Nordisk, Dutch semiconductor manufacturer ASML, and French luxury goods maker LVMH.

As you can see from these holdings, the trust’s breakdown spreads my capital across different sectors and territories, too. This gives me exposure to different investment opportunities while reducing risk.

Unfortunately the ongoing charge here is somewhat high, at 0.98%. This can take a bigger bite out of my returns than other trusts.

But given the cheapness of European shares right now, I still think the trust could be worth it. It could deliver market-beating returns as investor appetite for stock market bargains accelerates.