Focus on your Nest Egg this Easter
With less than two weeks to go until the end of the Tax Year, now is your chance to benefit from any remaining opportunities to invest tax-efficiently into your Pensions and ISAs. This year’s tax year ends on Easter Monday so you’ll need to make sure you’ve topped up your Nest Egg before cracking open the Easter Eggs as the Bank Holidays mean your savings need to be in a few days earlier than usual.
Here’s a quick recap on the current annual allowances, tax efficiencies and accessibility of each.
Allowance - £20,000 total per year, of which £4,000 can be in a Lifetime ISA (LISA) if you’ve yet to buy your first home. Can’t be carried forward, so use it or lose it.
Accessibility - Can be opened from 18 (16 if it is a cash only ISA) and Immediately accessible if required, but be mindful, if you opted for a Stocks & Shares ISA, we’d encourage you to be investing for the medium term of at least 5 years.
Tax-Efficiency - There is no income tax nor capital gains tax to pay on savings and interest earned from the ISA.
JUNIOR ISA (JISA)
Allowance - £9,000 per year. Can’t be carried forward so use it or lose it.
Accessibility - Can be opened at any age from birth and becomes the child’s as soon as they turn 18. Cannot be accessed before then.
There is no income tax nor capital gains tax to pay on savings and interest earned from the ISA.
Allowance - Between £3,600 and 100% of your earnings up to £40,000. Those with high income/earnings this £40,000 can be tapered back down so remember to check in with your financial adviser. Unused allowance can usually be carried forward.
Accessibility - Any age to open (yes even children). Accessible from age 55 (this may change from 2028 to age 57).
Tax-Efficiency - Personal contributions receive tax relief usually immediately of 20% and a further 20%/25% can usually be claimed for high rate/additional rate taxpayers. In the main, there is usually no inheritance tax or capital gains tax to pay on pensions. When you reach retirement age, normally 25% of your pension savings are available tax free and the remaining 75% is taxed at your income tax rate at the time.
So, which one to choose? It’s rarely as black and white as to which one is better than the other, it's more about what is the purpose of your savings. Take some time to consider when you’ll need to access these savings, what are you saving for and arrange to have a chat with your financial adviser to understand which option, or combination, may be appropriate for you and your family.
*The information contained within the above is for information purposes and does not constitute advise and if you do not understand any of its’ contents, please seek professional advice.
For further help or advice please contact Ethos on 01302 244977Publish date: 25th March 2021