Dancing on ISA
March 17th 2009
With tax relief available on payments up to 100% of earnings (or £3,600 if greater), many investors will be able to significantly boost pension savings by moving money from an ISA or savings account into a pension.
This comparison shows that personal pensions and SIPPs have more tax incentives, exposure to more asset types and can accept larger payments than an ISA. This should be balanced against lack of access until age 50 (55 from 2010), which means that they are longer term investments for most people.
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Feature
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Personal Pension/SIPP
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ISA
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Minimum age
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None
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Cash ISA: 16
Stocks & Shares ISA: 18
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Maximum age
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75
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None
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Maximum payment
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Unlimited – 40% tax payment charge on payments above £235,000 p.a. (annual allowance)
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Cash ISA: £3,600 p.a.
Stocks & Shares ISA:
£7,200 p.a.
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Tax implications
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Funds grow free of direct tax on income and capital gains. Tax relief on payments up to 100% of earnings (or £3,600 p.a. if greater)
Not normally subject to inheritance tax
25% of the fund can be taken as a tax free lump sum, the remainder taken as income taxed at your marginal rate.
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Growth/income is free of income tax and capital gains tax
Subject to inheritance tax.
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Level of access
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No access to savings until 50 (55 from 6 April 2010).
Funds cannot be encashed. Most of the fund must be used to provide an income. Funds cannot be gifted and once benefits are taken, the fund cannot be willed to the next generation.
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Most ISAs offer instant access to savings/investments.
No restrictions on how the funds are used. On death the ISA’s are encashed and forms part of your estate.
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Level of concurrency
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A person can invest in as many pension plans as they want at the same time – full concurrency
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A person can only invest in one Cash ISA and one Stocks & Shares ISA in any tax year*
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Permissible assets**
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Cash
Equities
Gilts and Corporate Bonds
Commercial Property
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Cash ISA: bank/building society deposit accounts Stocks & Shares ISA: individual shares,
Unit Trusts and OEICs allowing access to most asset classes.
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*where a person invests in both a Cash ISA and Stocks & Shares ISA the maximum total payment is £7,200 p.a. (so if £1,000 is invested in a Cash ISA only £6,200 can be invested in a Stocks & Shares ISA).
** SIPPs allow direct investment in the underlying assets as well as through collective investments, such as unit trusts and OEICs.
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References to taxation are based on our understanding of the current taxation law and practice and may be affected by future changes in legislation.
For an informal chat to discuss what might be the best option for you, please call or email us direct at advice@ prosperis.co.uk
