2021 Year End Tax Planning – Can you become an ISA Millionaire?

It’s that time of year again when one needs to consider all their tax saving options.

In truth, there are maybe two major things you need to be considering, ISA and pension contributions.

If you have not contributed to either of these, then it’s definitely worth considering. My personal favourites are ISA’s as you can still have an instant access to the cash, yet income and capital growth is tax free.

If you invest wisely, it’s possible to build a very large ISA holding which you have not paid any tax on at all – on the income or the capital growth. Your goal should be to build a large ISA holding and if you start early in your career, it’s pretty likely you can become an ISA millionaire!

Don’t forget about Junior ISA’s too

In addition, if you have children, make sure you are using their junior ISA allowances too. Currently, you can invest up to £9000 tax free into a junior ISA – again a no-brainer if you are thinking of saving for their futures.

Of course, pensions have the benefit of providing tax relief but you cannot access the funds until 55.

Both offer excellent options to be tax efficient, so if you have not used your allowances this year and have cash to invest, start with either (or both) of these two options!

Summary of details below:

ISA v pensions-
Benefits at a glance
ISAPension
Can I have instance access?

Yes
No access before age 55 unless due to severe ill health or protected retirement age
How much can I pay in?

£20,000 each tax year£3,600 gross or 100% of net relevant earnings (whichever is higher) subject to annual allowance limits
(currently £40,000 but can be lower for high earners)
What is the tax treatment in the fund?

Tax-efficient growth Tax-efficient growth
What tax relief is available on your contributions?

NoneImmediate 20% available

Higher/additional rate taxpayers can claim further relief via self-assessment
What happens on death?Full value is included in your estate for Inheritance Tax (IHT) purposesPension funds not currently included included in estate for IHT purposes

Death benefits are tax free if paid before deceased’s 75th birthday, but subject to beneficiary’s marginal rate of tax if deceased was over 75 at date of death

About Arun Mehra

Arun Mehra FCA is a world leading expert on Dental Business and CEO of Samera. He has extensive expertise on financing, deal structuring and tax issues arising in Dental Businesses.

Outside of Dentistry, you can probably find him with a backpack travelling around the world.

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