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Investment into an ISA or Pension

This is an example case study for illustrative purposes only.

Chris is a higher rate tax payer in his mid forties and he wants to make a tax efficient investment of £15,000 to use later in life.

Pensions and ISAs are the most popular ways of saving tax efficiently, but they are very different from each other – particularly in how they are taxed.  Choosing an ISA or a pension will depend on your personal circumstances , and you should consult a financial adviser to understand which is more suitable.  However, those wanting to save tax efficiently should maximise ISA and Pension saving if appropriate.

Putting money in

ISA

  • The Lifetime ISA allowance for 2018/19 is £4,000

Pension

  • 20% Basic Rate tax relief is added to the contribution
  • Higher or additional rate tax relief can be reclaimed from HMRC
  • Savers can obtain tax relief on up to 100% of UK earnings every year. This is subject to an Annual Allowance, in 2018/19, of £40,000. Savers may ‘carry forward’ unused allowance from the three previous tax years.
  • Those with no earnings get tax relief on the first £2,880 of contributions they make each year.

Taking money out

ISA

  • 100% is available tax free

Pension

  • 25% is available free
  • The rest is taxed at your marginal rate so you may pay 20%, 40% or 45% tax on your pension  (or a combination).

Important information

Forecasts are not a reliable indicator of future performance . Figures are based on assumptions relating to growth, product charges and tax (see below).  Actual returns  may be higher or lower, and the value of investments can go down as well as up.

  • For the ISA and the Pension, the assumed  annual growth rate is 5.1% and the assumed annual charge is 1%. For cash, the figures assume an annual growth rate of 1.3% net of tax and no annual charge.
  • Actual growth rates and charges may be  higher or lower. Figures assume net income is reinvested. Projections use tax rates and  allowances based on the 2015/16 tax year but these may change in the future. Tax treatment depends on individual circumstances. Annual charges may impact the value of your investment by reducing growth.
  • Projections do not take account of the effect of inflation. Over time, inflation reduces the real value of your money.
  • The pension projection (after tax) assumes that no income tax allowance such as the Personal Allowance is available  for the purposes of assessing income tax liability.  Tax treatment of a pension fund on withdrawal will depend on an individual’s circumstances and the on prevailing tax regime when the pension is taken.

Accurate as  at April 2015.

CASE STUDIES

Pension for children and
grandchildren

Dave and Ann are a married couple in their late sixties. They would like to save for their grandchild’s future using disposable income.

Starting to save early into a pension
Dave is 30 and wants to save regularly into a pension  and wants to weigh up the potential benefits of saving early rather than later.

For access to advice from a Private Banking and Advice Manager, you’ll need at least £250,000 in savings, investments and/or personal pensions and/or a sole annual income of at least £250,000.
Find out more about Eligibility and fees.

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