If you compare the net result of pension and ISA investment its approx the same:-
As an illustration lets assume an investment gain of 30% for a basic taxpayer.
PENSION:-
£78 net invested gives an investment of £100
Increase by 30% goes to £130
Now if the income is taxed at basic rate...
£130 becomes effectively £101.40
ISA:-
£78 net invested in an ISA
Increase by 30% goes to £101.40
So for a contractor a pension is a no brainer as you don't get the following with an ISA ...
[1] pension tax relief at 22% going in but pay nothing or just 10% coming out (for income below 10K per year)
[2] reduces your corporation tax liability without affecting the amount of tax/ni contributions
[3] You get 25% tax free lump sum on retirement
I'm not saying contractors shouldn't have ISA's ... but we should have a pension preferably a SIPP?
As an illustration lets assume an investment gain of 30% for a basic taxpayer.
PENSION:-
£78 net invested gives an investment of £100
Increase by 30% goes to £130
Now if the income is taxed at basic rate...
£130 becomes effectively £101.40
ISA:-
£78 net invested in an ISA
Increase by 30% goes to £101.40
So for a contractor a pension is a no brainer as you don't get the following with an ISA ...
[1] pension tax relief at 22% going in but pay nothing or just 10% coming out (for income below 10K per year)
[2] reduces your corporation tax liability without affecting the amount of tax/ni contributions
[3] You get 25% tax free lump sum on retirement
I'm not saying contractors shouldn't have ISA's ... but we should have a pension preferably a SIPP?
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