Talking Point  

Isas and pensions are most used tax wrappers

Isas and pensions are most used tax wrappers

Isas and pensions may be two very distinct tax-efficient wrappers, but they are both equally popular, according to the latest FTAdviser Talking Point poll. 

The poll asked financial advisers which type of tax-efficient wrappers their clients used the most. 

Both Isas and pensions are commonly used, as 48 per cent of advisers who voted said their clients used these two wrappers the most. 

Only 4 per cent of advisers said their clients invested in venture capital trusts, while not a single adviser said their clients put cash into enterprise investment schemes. 

Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, said: "The results don't surprise me at all. I'm actually quite pleased to see VCTs and the EIS quite low down."

Jason Hollands, managing director and spokesperson at Tilney, said: "While rule changes introduced in 2015 have transformed the options for how pension pots can be used, removing the requirement to buy an annuity altogether, the earliest date a pension can be accessed is still restricted to age 55."

Pension freedom reforms introduced in April 2015 changed how pension pots can be accessed. 

Mr  Hollands added: "Withdrawals from Isas, in contrast, whether taken as income or capital, are entirely free of tax at any point and do not need to be disclosed on a tax return.

"This makes Isas ideal for many goals unrelated to retirement, such as paying-off a mortgage, saving for a child's education, wedding costs, holidays or to provide a rainy day fund."

Lauren Radford, head of business management at MJ Hudson Allenbridge, said: "One of the under-acknowledged benefits of Isas being so flexible are that you can do your traditional cash and shares but, moreover, you can place into many VCT and AIM inheritance tax portfolios through an Isa as well, maximising your tax efficiency."

Jack Rose, head of tax-efficient products at LightTower Partners, pointed out that VCT and EIS investments were not going to be suitable for everyone, as they are higher risk investments.

"They are only likely to be considered once investors have used up pension and Isa allowances,” he suggested.

But he added: "However, given the changes in recent years to pensions, and restrictions now facing a growing proportion of high-net-worth investors with either the lifetime limit or the tapered annual allowance, VCTs and EIS are more likely to be part of people's considerations."