ISAs – The 10% income boost you could be missing out on

The tax-free environment makes Stocks and Shares ISAs an important vehicle when growing your wealth, and you can invest in anything from funds to direct companies. Whilst you may well have paid income tax on earnings you put into your ISA, there will be no further tax to pay when you come to access your money.

This is the big difference to withdrawals from pensions, which are always taxed at your marginal rate. As such, it’s vital to have a balance of both pensions and ISAs. It ensures wealthier individuals, in particular, can access the income levels they require whilst keeping tax to a minimum.

One of the other benefits (or drawbacks, depending on how you look at it), is that you can access the money whenever you need it, compared with a pension, which is locked-up until you reach age 55. Having both a long-term pension and an easily accessed ISA in your armoury is a great way to stay prepared in case life throws something unexpected at you.

To illustrate the tax benefits of an ISA-pension savings split, if in retirement someone received £50,000 a year, wholly from their pension, they would pay £7,500 a year in tax. However, if that income was split 50/50 between a pension and an ISA, they’d only pay £2,500 a year in tax. You might notice that’s a 10% annual difference from just basic tax planning. Something you’d struggle to find through investment performance alone.