SWT Wealth Management
Advertising feature: The decision to freeze income tax personal allowance and higher rate thresholds, coupled with the lowering of the additional rate threshold to £125,140 means that most of us will pay more tax. In addition, the tax-free allowances for Dividend and Capital Gains Tax will be cut this year, and again in 2024. It’s more important than ever that your financial plan involves both pensions and ISAs, to utilise your available tax allowances. Taking financial advice to help you decide how to split your money between pensions and ISAs means you’ll put yourself in a better position both now, and in the future.
Why you should use pensions and ISAs together
A combination of both is often a tax-savvy way to save, especially in the current climate. Of the two, pensions are still the most tax-efficient, since the basic rate tax relief guarantees you a 20% cash boost from the government on contributions you make subject to certain limits. If you’re in a workplace pension scheme, your employer will also be contributing at least 3% of your qualifying earnings. You can access your pension from age 55, though this will rise to 57 in 2028. Another plus; you can choose who you pass your pension pot on to when you die. Since pensions fall outside of your estate when it comes to paying Inheritance Tax, that’s a wonderful thing to leave to a loved one. ISAs are hugely popular. They’re a tax-efficient, simple, and flexible way to save. There are various types of ISA’s, including Cash, Stocks and Shares, lifetime, and innovative finance. Since you don’t pay tax on interest, income, or capital gains in any of these ISAs, you don’t need to declare them on your tax return. ISAs have no age restrictions, so that flexibility means you can have cash ready for rainy day emergencies, as well as for other goals that are a little further in the future. Using a combination of pensions and ISAs is a good way to plan for short, medium, and long-term goals.
Using a pension to reduce tax and reclaim allowances
Personal pension contributions reduce your taxable income, and therefore the amount of tax you’ll pay. They also may help you hold on to certain benefits and allowances, by keeping you within the threshold. All of which means you’ll have more money to save or spend. You can’t use ISAs in the same way since any contributions you make come from your taxed income. Pension contributions can also help you hold onto your Child Benefit, which you would lose if one partner or parent in the household earns more than £50,000. For example, someone earning £52,000 would have to repay 20% of any Child Benefit they receive via self-assessment. But if they contributed £2,000 (gross) into a pension, they’d still be entitled to Child Benefit and sidestep the tax charge. In addition to the 20% basic-rate relief, higher or additional rate taxpayers can also claim an extra 20% or 25% as applicable relief on pension contributions through their annual tax return.
The value of an investment with St James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Please note that Cash ISAs, Lifetime ISAs, and Innovative ISAs are not available through St. James’s Place.
SWT Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
To find out ways we can help visit: www.swtwealth.co.uk or contact us on 029 2252 0168 or 07946183512
SJP Approved 01/03/2023