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Is there any point in an ISA when a HRT payer?

Can anyone explain what the benefit would be of saving money into an ISA instead of a pension wrapper if you are a HRT payer.

I am considering further how to save for the future but in my situation I cannot see how the ISA is beneficial?

Therefore I was thinking of overpaying into private pension and via sal sacrifice at work and then some overpayment of mortgage just to spread things a little.

If there is any more information needed please ask.

Comments

  • Andy_L
    Andy_L Posts: 13,074 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Not paying HRT on the interest.
  • You (may) have to pay tax when you take money out of the pension. You will not when you take money out of the ISA.
  • Can anyone explain what the benefit would be of saving money into an ISA instead of a pension wrapper if you are a HRT payer.

    I am considering further how to save for the future but in my situation I cannot see how the ISA is beneficial?

    Therefore I was thinking of overpaying into private pension and via sal sacrifice at work and then some overpayment of mortgage just to spread things a little.

    If there is any more information needed please ask.

    ISA's can be accessed with ease before 55 if circumstances change, and allow very early retirement.

    If you expect to have an income above £43k in retirement the tax doesn't change, you'll be taxed at higher rate on the pension income anyway.

    If you start a pension fund in your 20's with high contributions the LTA could bite later in your life, but as ISA allowances are use it or lose it you may not be able to fit all of your savings into ISA's in your 50's if you have to stop contributing to your pension, spreading your investments between pension and ISA from the start solves this.

    Most of the benefits of ISA in conjunction with Pension are only benefits if you are really hitting pensions and savings really hard, so not really relevant at £50k income, but REALLY relevant at £100k+
  • ISA's can be accessed with ease before 55 if circumstances change, and allow very early retirement.

    If you expect to have an income above £43k in retirement the tax doesn't change, you'll be taxed at higher rate on the pension income anyway.

    If you start a pension fund in your 20's with high contributions the LTA could bite later in your life, but as ISA allowances are use it or lose it you may not be able to fit all of your savings into ISA's in your 50's if you have to stop contributing to your pension, spreading your investments between pension and ISA from the start solves this.

    Most of the benefits of ISA in conjunction with Pension are only benefits if you are really hitting pensions and savings really hard, so not really relevant at £50k income, but REALLY relevant at £100k+

    Thanks Martin. Income is £130k +
  • chrismac1
    chrismac1 Posts: 2,585 Forumite
    Capital gains tax. Flexibility. You can take out money from an ISA with no strings attached, no tax to pay, no silly rules.

    A pension withdrawal potentially has all 3 of these.
    Hideous Muddles from Right Charlies
  • Thanks Martin. Income is £130k +

    Depending on your plans you should be getting close to the £40k annual pension allowance (with company contributions) anyway, contributing to a pension to get your taxable income down to £99,999 will be saving you tax at 60% (or 62% if via salary sacrifice), due to the silly punitive personal allowance withdrawal.

    I would (and am) then save in a S&S ISA with the plan for that to cover me from 50-55, before the pension kicks in.
  • chrismac1
    chrismac1 Posts: 2,585 Forumite
    A real-life example from my own portfolio might help. On 8 June 2015 I bought £9,000 worth of Burford Capital at £1.51. Those shares are now worth £70,000 or so and have also thrown off £1,000 or so of dividends in the meantime.

    All of this is within my ISA. No tax paid, none to pay. Totally free to take the lot out right now if I want to, though in fact I bought another 900 shares at around £9 a few months back when the share price dipped a bit.

    Stuff like this is why ISAs have been such a good deal. I've been investing since 1996 and over the years I've had quite a few shares which have increased by 500% or more.

    In an ISA that is just great news. It is also great news in a pension, of course, but try taking the full £70k out of a pension in one go and see what happens to you!

    So I do both, have done since 1996. 50% ISA and 50% pension. No regrets about that strategy.
    Hideous Muddles from Right Charlies
  • Depending on your plans you should be getting close to the £40k annual pension allowance (with company contributions) anyway, contributing to a pension to get your taxable income down to £99,999 will be saving you tax at 60% (or 62% if via salary sacrifice), due to the silly punitive personal allowance withdrawal.

    I would (and am) then save in a S&S ISA with the plan for that to cover me from 50-55, before the pension kicks in.

    Martin, forgive my ignorance but are you able to explain how the tax banding works and how you get to 62%???
  • pavane
    pavane Posts: 155 Forumite
    S&S ISA yes, cash ISA no.
  • Martin, forgive my ignorance but are you able to explain how the tax banding works and how you get to 62%???

    40% higher rate tax
    2% NI
    20% effective additional tax due to the withdrawal of the personal allowance at the rate of £1 for every £2 of taxable earnings over £100,000, meaning that for every £1 extra you earn between £100,000 and £121,000, 50p gets taxed at 40%, ie, 20% tax rate.

    effective tax rate of 62%

    if you earn £100,000 you take home £X.YY
    If you earn £100,001 you take home £X.YY + £0.38
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