Tax Efficiency
SIPPs
SIPPS are the most tax efficient way to save for your retirement, providing a return of income tax at your highest level (subject to relevant earnings and the £60,000 annual contribution limit).
Your fund then grows completely free of UK income and capital gains tax and 25% of your withdrawals are tax free. The balance is taxed as income at your marginal rate, which can be lower in retirement than when you were contributing. Please note that the Vanquish SIPP will not offer income drawdown until 2026.
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There is a £268,275 limit on the tax-free cash element and a £1,073,100 limit on combined tax-free lump sums and death benefits before age 75.
Self Invested Personal Pensions
ISAs
ISAs are highly flexible tax efficient savings accounts. There are two main types, Stocks & Shares ISAs, and Cash ISAs, plus Junior ISAs, Lifetime ISAs, Innovative ISAs.
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You can invest up to £20,000 each year and all growth, income and withdrawals are completely free of UK tax. Unlike SIPPs, there is also no limit on the tax free value your ISAs can grow to.
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A major attraction of ISAs is that your money is not locked in until retirement, meaning that you can access it at any time and therefore use the tax free benefits for other purposes, such as a property deposit, school fees or general savings.
Individual Savings Accounts
GIAs
GIAs, or General Investment Accounts, are taxable investment accounts. There is no tax relief on contributions and income tax is payable on any income generated (such as interest or dividends). There is also capital gains tax on any growth, payable when assets are sold.
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The main advantage of these accounts is that, unlike SIPPs and ISA, there are no limits on how much you can contribute. There are also no restrictions on withdrawals.
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You can use your income tax, dividend, and capital gains tax allowances to reduce liability, but using your ISA and Pension/SIPP allowances first is usually more tax-efficient.