ISAs and pensions: keep the tax as well as the fees
Before choosing what to invest in, choose where to hold it. In the UK, an ISA or a pension shelters your investments from tax on growth and income, which over time matters as much as the charges.
Stocks and shares ISA
- You can put in up to £20,000 each tax year (6 April to 5 April) across all your ISAs. Unused allowance doesn’t carry over.
- No income tax on dividends and no capital gains tax on growth, and you don’t have to report it on a tax return.
- You can take money out whenever you like.
- From 6 April 2027 the most you can put into cash ISAs each year falls to £12,000 for under-65s; the £20,000 overall limit stays, so the rest can go into stocks and shares.
Pensions and SIPPs
- A SIPP (self-invested personal pension) is a pension you run yourself on a platform. A workplace pension may also let you choose its funds.
- Tax relief goes in: the government adds basic-rate relief, so £1,000 from you becomes £1,250. Higher-rate taxpayers can claim more through their tax return.
- Most people can pay in up to £60,000 a year (the annual allowance), and no more than they earn; non-earners up to £3,600 including relief. High earners may have a lower limit.
- The money is locked away until 55, rising to 57 from 6 April 2028. Usually a quarter can then be taken tax-free, and the rest is taxed as income when you draw it.
- If your employer matches your pension contributions, that’s usually the best return you’ll find anywhere: take the full match first.
A common order
- An emergency fund in cash first.
- Enough into a workplace pension to get the full employer match.
- Then a stocks and shares ISA for flexibility, and more into a pension for the tax relief, depending on when you’ll need the money.
Then keep the costs inside each wrapper low: the fee calculator shows why.
Where to go next
- The official rules: ISAs on GOV.UK and tax on your private pension.
- Free, impartial guidance: MoneyHelper, backed by the government.