ISAs & bonds

ISAs are a valuable tax-efficient wrapper into which to place all sorts of savings and investments.

People often ask; “What is best an ISA or a Pension?”

The short answer is – both!

You can very often invest in identical funds, experience the same tax efficient returns but the key difference is taxation. Whilst you receive tax relief on pension contributions on the way in you are taxed on the way out as your pension income will be subject to Income Tax. ISAs do not receive tax relief but you can take 100% of the proceeds tax free so both have a role to play in your financial planning.

Another key difference is that you can access your ISA at anytime, you have to be over 55 to access your pension fund.

As you can wrap the majority of assets in an ISA (Cash, Shares, Funds, Bonds etc) and there are more tax benefits than having the same assets sat outside an ISA it is sensible to use your ISA allowance wherever possible.

ISAs are available to all UK residents over the age of 16 for cash ISAs and over 18 for stocks and shares ISAs. Designed to encourage longer term saving they are attractive to investors seeking a tax-efficient investment vehicle with the potential for higher returns. They offer a low minimum investment and no minimum holding period.

An ISA enables your investment to grow tax efficiently manner as all gains are free from tax, making them particularly attractive to higher rate taxpayers.

You can transfer ISAs form previous years into a better performing ISA without losing the tax benefits. There may also be benefits in consolidating several previous years ISAs into one place. The current year’s allowance is unaffected by anything transferred from previous years.

Withdrawals from an ISA can be made at any time but as it is only possible to hold one ISA per tax year if an ISA is closed within the same tax year it was opened, another one cannot be started until the next tax year.

Investment Bonds

Investment Bonds is a term that covers a multitude of different investment styles but all have the same fundamental aim; generate returns to provide income or capital growth over the medium term (you should really only consider Bonds if you are looking to invest for 5 years or more).

Bonds can be based onshore (within the UK) or offshore (usually in the Republic of Ireland or the Isle of Man) to take advantage of ‘gross roll up’ which means that the returns in your Bond are rolling up without deduction of tax which is a powerful compounding effect on your ultimate return.

You can withdraw income/capital up to 5% of your original investment without generating any immediate tax liability (you can potentially defer tax for up to 20 years on this basis) and you should be able to make withdrawals or additional payments to the Bond at any time.

I found Paul very personable and he explained the investment process clearly step by step and in a very professional manner. Once established, Paul and his wider team have supported me, and the returns have been as expected. From my experience, I highly recommend Paul at Pension Matters for help and guidance with personal investment.
Jane Steel, Morpeth
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