At this time of year my inbox becomes overcome with communications from Product Providers, fund management companies, estate planning firms all of them getting excited about the tax year end and I don’t think there will be any doubt whatsoever that I will have previously joined the bandwagon to then communicate with my clients, saying things like “use it or lose it”, “maximise your tax efficient savings” and perhaps offer some explanation about how efficient Individual Savings Accounts (ISA’s) can be.
Are ISA’s any good? – yes, I suppose they are however, I do not get excited about Products or Wrappers so I wouldn’t dream about asking my clients for this type of reaction either. At Astute Financial we care about outcomes and our clients achieving what they want, with their money. These wrappers, as we call them, are merely tools to get our clients where they want to go and let me provide you with an example of where an ISA can be used to help tax efficiency for income in retirement.
For most of us the main retirement plan will be that of a Pension so let’s say you have built up a pot of money, in a pension, and you wish to generate £25,000 per annum. Assuming we have exhausted tax-free cash entitlement, this is a taxable income withdrawal so this £25,000 will be paid as approximately £22,520.85 after the deductions of income Tax (Scotland).
Let’s say this client had been able to accumulate both ISA and Pension provision and taking the same £25,000 income need as an example. Here we may well advise that £12,500 be taken from the Pension (within the personal allowance so tax free) and the other £12,500 be taken from the ISA so £25,000 net paid to the client and without any deductions of income tax. ISA withdrawals are not taxable or noted on the tax return.
This is a saving of £2,479.15 per annum and not an ongoing advisory service that is built around investment performance or economic speculation – just proper financial planning.
Please get in touch to discuss how to maximise the efficiency of your financial plan.