In April, the Chancellor delivered possibly his most radical Budget. With major changes to both Pensions and ISAs, which is now better to invest in when saving for the future?
Taxation
- Pension contributions before age 75 benefit from immediate tax relief, up to a maximum annual allowance of £40,000 (non-earners can contribute £3,600). Basic rate taxpayers and non-taxpayers gain an extra 20% contribution. Higher rate taxpayers gain 40%. Over time, this should significantly increase the ultimate size of your Fund.
- ISAs have no tax relief on contributions, which are limited to £15,000 annually from 1st July.
- Both are tax-free for capital gains and income generated while invested.
- Each is treated differently upon death.
Withdrawal
- 25% of the pension can be taken as a tax free lump sum, assuming you are at least 55 years old. The rest can provide an income or, if taken as cash, be taxed as income when withdrawn, possibly incurring higher rates of tax as a result.
- All ISA withdrawals are tax-free.
Your existing arrangements and individual circumstances are also important factors when considering alternatives. So, which is better for you? For more information or a free initial consultation, email; chris.allen@charlesderby.com or call 07864 703583.
The value of the investment can go down as well as up and you may not get back as much as you put in.