When you are saving and investing for your future, it can be hard to decide which account is best for you. It is often appropriate to have more than one account depending on your time frames.
Stocks and Shares ISAs offer flexibility and are a great way for you to build up wealth tax-efficiently as any growth on money in an ISA is free from income tax and capital gains tax.
Benefits of saving into a pension
A pension is another option for you to invest in for your future. The main benefit of a pension is tax relief. This is where, subject to certain limits, the government gives you tax relief on contributions you make to a pension at your rate of income tax. Everyone automatically receives 20% basic tax relief on pension contributions. Higher and additional rate taxpayers can claim back their tax relief rates through their tax return.
Tax-efficient growth on your pension pot
Any growth on money invested into your pension is free from Income Tax and Capital Gains Tax which will give your retirement savings a boost.
Reduce any Inheritance Tax liability
One thing that is often overlooked is that pensions sit outside of your estate so are not liable to Inheritance Tax. Inheritance Tax in the 2023/24 tax year is 40% on anything over the Nil Rate Band (you may also be eligible for the Residence Nil Rate Band).
Therefore, it might be most tax-efficient to save into your pension, benefit from tax relief and utilise your other assets such as ISAs for income as much as possible before touching your pension. This will enable you to leave more to your loved ones free from tax.
Inheritance Tax is a complex issue, you may benefit from booking in a no-obligation meeting with one of our financial advisers to discuss your options.
How much can I pay into a pension?
Most people get tax relief on pension contributions worth up to 100% of their earnings, capped at £60,000 each tax year. This is called the ‘annual allowance’. You can also ‘carry forward’ any unused pension allowance from the previous three tax years so you can contribute a large lump sum if you wish to maximise the benefits of tax relief.
The value of an investment with St. James’s Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.
