Sipps v isa

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  • 1. SIPP v ISA... Which is Best For Saving Tax For Your Retirement? Scots Financial Advisor William George looks at the pros and cons of these two important types of investment, that can help pave the way for life after work, highlighting the tax benefits of both. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info Image by Alan Cleaver - Creative Commons Licence
  • 2. "Sometimes people get confused between a Self Invested Personal Pension (SIPP) and a Individual Savings Account (ISA) when considering the tax benefits each give and how they can work for retirement planning" Well, lets look at the essential similarities and differences because both are helpful financial investments... Copyright: All Rights Reserved 2013 William George www.williamgeorge.info Image by Alan Cleaver - Creative Commons Licence
  • 3. SIPP v ISA Essential No 1 Q: Why should I use either? A: Because early planning, done correctly, will help to provide you and your family with the retirement lifestyle you want in the future. Hopefully you will see why SIPPS and ISAs can be an important part of that mix. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info
  • 4. SIPP v ISA Essential No 2 Q: If both SIPPs and ISAs are good, what are the main differences? A: Both offer different benefits but there are significant differences. One gives you a tax break immediately, while the other gives you tax free income in the future. So as you read on, consider which strategy is the best fit for your retirement portfolio aspirations. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info
  • 5. SIPP v ISA Essential No 3 Q: Can you tell me more about the ISA? A: At present an ISA (Individual Savings Account) gives you no tax relief, and limits your contributions but your ISA does allow you to make withdrawals at any time with no tax implications upon withdrawal. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info
  • 6. SIPP v ISA Essential No 4 Q: What about SIPPs? A: A SIPP (Self Invested Personal Pension) provides tax relief based on your marginal rate, and sets no limits on your contributions when your income is less than £130K. However, your SIPP is inaccessible until you're 55 and should you access it, there could be tax implications. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info
  • 7. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 5 Q: What about tax efficiency for both? A: Being tax efficient should be a strong consideration when building your investment and retirement portfolio. Any monies withdrawn from your ISA are not taxable, however they do not attract tax relief from the Government on contributions as pensions do.
  • 8. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 6 Q: I'm still not sure on the tax differences, can you explain further? A: Example; if you invest £10, 000 in an ISA, that's what your investment will begin with, and you don't attract tax on monies withdrawn. However, £10,000 invested into a SIPP Pension will actually mean your investment is boosted to £14,000.00 (for higher tax payers) because of the tax relief offered by HMRC. You will be taxed on income drawn from your pension later.
  • 9. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 7 Q: If I am a higher rate tax payer, would SIPPs or ISAs be best for me? A: As a taxpayer on a high income tax bracket, any money put into a pension fund would attract a 40% tax relief contribution from the Government. Growth on the investment in pension funds benefit from a less severe tax system than an identical investment or savings plan. If you're lucky enough to be able to invest more than what is allowed with your annual ISA allotment, then the balance should be going into a SIPP pension.
  • 10. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 8 Q: Is it difficult to find the right SIPP for me? A: Sometimes. Finding the right SIPP can often be a challenge for investors. Here, the guidance of a professional financial advisor will pay dividends if you are one of those who loathe wading through the maze of SIPPs being offered now by yourself. An adviser will help you to understand the different options, and together you can choose the best one for your individual situation.
  • 11. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 9 Q: What if I am a basic rate tax payer? A: If you are a basic rate tax payer, anything put into a pension fund would be boosted 20% immediately due to the Government's tax relief contribution. For low income and moderate income earners with workplace pensions in addition to their ISA accounts this could be the best way to invest for their future. It could provide a solid starting foundation for the younger workforce, who when they start to earn more later, could then naturally look toward adding SIPPs into their retirement mix.
  • 12. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 10 Q: Can I just save for retirement with an ISA? A: An ISA is not a pension product, but can complement retirement planning income from a pension plan. However, any money you put into an ISA will not be subjected to Income and Capital Gains Tax when you remove money from the account. It does offer you flexibility should you need to withdraw money in the future. Your advisor is the one who can help you assess if this is the best option for you.
  • 13. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 11 Q: How can I maximise my tax savings? A: To maximise your savings you'll want to ensure your pension withdrawals in the future stay below your individual allowance. If you're in a 40% tax bracket you'll want to invest as much income as possible to benefit from the 40% tax relief, and when retiring take the top amount of tax free cash allowed. This is where you can use ISA monies if you require more income, and do so tax free.
  • 14. Copyright: All Rights Reserved 2013 William George www.williamgeorge.info SIPP v ISA Essential No 12 Q: So using both may be a good idea? A: Yes, a great option to consider for many middle income earners could be to use both. With each of these investment vehicles having both pros and cons, you can give yourself more flexibility and avoid some of the negative parts of each. You should speak to your Financial Advisor to work out the best plan for your individual retirement pension options.
  • 15. "Hopefully it's clear that both SIPPS and ISAs are beneficial and tax benefits come with both." If you wish to discuss either in more detail please do phone me for more advice... Copyright: All Rights Reserved 2013 William George www.williamgeorge.info Call FREE on 0800 321 3508