What’s the difference between an ISA, Pension and General Investment account?

ISA’s and Pensions are two very common forms of tax wrapper. That means they have certain tax advantages, but also have certain rules applied to them. A general investment account has fewer rules, but are also subject to certain taxes.

For an investment, holding the funds in an ISA means that you would not pay capital gains tax or dividend taxes on funds held withing this wrapper. Some basic rules are though, that you must be a UK tax payer and live in the UK to contribute to one, and you are limited to making a contribution of ￡20,000 a year maximum.

A pension wrapper also means that there is no capital gains tax to pay on funds held within this type of wrapper. The very basic rules are though, that you are limited on what you can contribute each year and gain tax relief, plus there are rules for when you withdraw money out. For most pensions, you can withdraw 25% of the fund value as a tax free lump sum, with anything else taxed as an income at your marginal rate. Most people cannot withdraw any funds until they are at least 55 (moving to 57 in April 2028). These days there are lots of options for how to withdraw the funds, which does make finding the right solution a little more tricky.

Note – the above represents some very basic rules for each wrapper type and not a full overview.

If you have questions about your pension, get it touch with us at [email protected] or use our contact page at https://advisemyfinances.com/contact

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Disclosure: Please be aware that the above does not constitute financial advice. We recommend that you consider your existing investments, pensions and financial arrangements and then take advice.

The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise and you may not get back the full amount you invested. Past Performance is no guide to future performance.

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