The Budget announced that from 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in.
This is why you should get one!
- 25% Bonus – free money is always good
- It encourages you to save – building up savings for a house or retirement will definitely be of benefit
- The under 40’s will probably see this as better than a pension plan, as you can’t access pensions until you are 55
Personally Pensions are still my favourite…
Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)
| 40% Tax Rate | 20% Tax Rate | |||||||
| Year | Pension | No Pension | % Diff | Year | Pension | No Pension | % Diff | |
| 1 | £10,700 | £6,252 | 71% | 1 | £10,700 | £8,336 | 28% | |
| 2 | £22,470 | £12,954 | 73% | 2 | £22,470 | £17,272 | 30% | |
| 3 | £35,395 | £20,131 | 76% | 3 | £35,395 | £26,841 | 32% | |
| 4 | £49,564 | £27,808 | 78% | 4 | £49,564 | £37,078 | 34% | |
| 5 | £65,077 | £36,013 | 81% | 5 | £65,077 | £48,017 | 36% | |
| 6 | £82,036 | £44,773 | 83% | 6 | £82,036 | £59,698 | 37% | |
| 7 | £100,555 | £54,119 | 86% | 7 | £100,555 | £72,158 | 39% | |
| 8 | £120,754 | £64,081 | 88% | 8 | £120,754 | £85,441 | 41% | |
| 9 | £142,761 | £74,692 | 91% | 9 | £142,761 | £99,590 | 43% | |
| 10 | £166,715 | £85,987 | 94% | 10 | £166,715 | £114,649 | 45% | |
| 11 | £192,765 | £98,000 | 97% | 11 | £192,765 | £130,667 | 48% | |
| 12 | £221,070 | £110,771 | 100% | 12 | £221,070 | £147,694 | 50% | |
| 13 | £251,801 | £124,337 | 103% | 13 | £251,801 | £165,782 | 52% | |
| 14 | £285,140 | £138,740 | 106% | 14 | £285,140 | £184,987 | 54% | |
| 15 | £321,285 | £154,024 | 109% | 15 | £321,285 | £205,365 | 56% | |
| 16 | £360,445 | £170,233 | 112% | 16 | £360,445 | £226,978 | 59% | |
| 17 | £402,846 | £187,416 | 115% | 17 | £402,846 | £249,888 | 61% | |
| 18 | £448,731 | £205,621 | 118% | 18 | £448,731 | £274,161 | 64% | |
| 19 | £498,358 | £224,901 | 122% | 19 | £498,358 | £299,868 | 66% | |
| 20 | £552,006 | £245,309 | 125% | 20 | £552,006 | £327,079 | 69% | |
Even when you consider:
- Your money is locked up till you are 55
- You pay tax when you take money out of the pension
- You can get 25% out of the pension tax free
The difference in growth is massive
If you do salary sacrifice you can increase the tax effect by saving national insurance too.
