deferring tax out of the equation

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guitarplayer
Posts: 1292
Joined: Thu Feb 27, 2020 6:43 pm
Location: Scotland

deferring tax out of the equation

Post by guitarplayer »

There is a form of savings account in the UK that is a sort of mix between a regular savings account and a dc pension account. It is capped at about $6,200 pre-tax savings a year between ages of 18 and 50 that can go into it.

The DC pension elements of it are that
- effectively it is pre-tax (20% basic tax rate) savings that go into it.
- The money can be treated as cash savings and earning some meager interest (although now it is 3.5%) or be invested in various investment instruments.
- One can start drawing from it at 60 earliest. Actually, for other standard private pension plans it is 58 now for people in their 30s and it is not guaranteed both these numbers will stay the same.

This last point is often pulled against this account vs standard private pension plans, i.e. one has to wait longer to be able to withdraw their money.

The regular savings account elements of it are that
- one can use the money anytime to buy their first house / flat / condo / land
- after turning 60 one can just withdraw the money TAX FREE.

This last point occurred to me only recently. One can withdraw ALL the pre-tax money without ever paying taxes on it regardless of other circumstances. For DC pension accounts it is usually possible to withdraw 25% tax free and the rest of withdrawals is taxed as income.

Am I missing something or is it a no brainer to max out on contributions to such an account?

chenda
Posts: 3281
Joined: Wed Jun 29, 2011 1:17 pm
Location: Nether Wallop

Re: deferring tax out of the equation

Post by chenda »

What is this called ?

guitarplayer
Posts: 1292
Joined: Thu Feb 27, 2020 6:43 pm
Location: Scotland

Re: deferring tax out of the equation

Post by guitarplayer »


chenda
Posts: 3281
Joined: Wed Jun 29, 2011 1:17 pm
Location: Nether Wallop

Re: deferring tax out of the equation

Post by chenda »

guitarplayer wrote:
Wed May 31, 2023 3:28 pm
LISA
Apparently you also get a 25% annual bonus from the government.

It looks pretty good but I'd treat it essentially like a pension scheme due to the age restrictions and early withdrawal penalties.

ducknald_don
Posts: 320
Joined: Thu Dec 17, 2020 12:31 pm
Location: Oxford, UK

Re: deferring tax out of the equation

Post by ducknald_don »

Monevator is a great source of information on UK personal finance:

https://monevator.com/lifetime-isa/

xmj
Posts: 118
Joined: Tue Apr 14, 2020 6:26 am

Re: deferring tax out of the equation

Post by xmj »

What are the taxation effects of moving abroad?

Switzerland has similar schemes called Pillar 3a, and those are very beneficial even if you plan to move away in the near-mid term.

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