Our clients are aware of the tax advantages offered by NISAs and pensions. Both of which we use to make sure our clients’ money is working as hard as it should.
Coupled with a sensible financial plan this leaves them on track to live the life they want now and in retirement.
If you are not our client however, or are unfamiliar with the tax benefits available, then it is worth briefly recapping just what you could be missing out on!
Pension vs NISA
Both pensions and NISAs offer various ways to reduce the amount you pay in tax.
The main difference between the two is broadly that, with a pension, you are typically locked in to saving for longer, whilst with a NISA you could access your money whenever you wanted to.
Most of our clients have both a NISA and a pension. This offers the flexibility they need without adding to the overall cost.
Tax breaks
The tax benefits of both are can be significant.
NISAs present the promise that, in most cases, you pay no tax on any income you take. There is also very little tax paid on growth within your NISA.
Depending on how and when the money is invested, and how long it is invested for, the gains from NISAs can potentially be sizeable, so the fact that there is no tax to pay can form significant extra income.
Pensions, meanwhile, save you tax at source. You do not pay income tax on the amount you invest. Therefore £10,000 invested “costs” you £5,500, £6,000 or £7,800 depending on your rate of tax.
As with NISAs there is also very little tax to pay on the growth within your pension.
You can access your pension from 55. The first 25% you take it tax free. The remaining 75% will be taxed at your normal tax rate. Or you can take just tax free cash and leave the taxable element until later.
In so doing you can manage your tax bill and perhaps pay less in tax on exit than you got in relief on entry.
Amongst the biggest drags on investment performance are costs and tax. We work very hard to keep both as low as possible for our clients.
Inheritance
You need to take into account estate planning when you decide how you invest.
More pensions than ever will now avoid the so-called ‘death tax’, which saw some pensions taxed at 55% before they were passed on to beneficiaries.
Pensions do not necessarily form part of your estate for IHT, where NISAs do.
If your estate is worth more than £325,000 on death, anything above might be taxed at 40%.
Our view
- We will help you make sense of how and when NISAs and pensions should be used.
- As part of your financial plan they play a key role.
- You financial plan should also take into account short term requirements, debt, protection and estate planning.
- Only then can you be confident that you can live the life you want now and in retirement.
WANT TO DISCUSS THIS FURTHER?
Drop us a line, advice@www.townclosefp.co.uk,
or give us a ring, 020 7993 4898
The initial consultation is at our expense and there’s no obligation.