ISAs, GIAs, pensions & bonds: don't miss out on tax year end allowances

With tax year end fast approaching, the opportunity to use up personal allowances for ISAs, pensions and other tax wrappers is running out. In this refresher, we go through the different tax wrappers, how they work, and which ones you can take advantage of ahead of 5th April.
There are several ways to structure your savings and investments to minimise the amount of tax you pay. While some products are more suitable and accessible than others, they are all branded ‘wrappers’ since they are special accounts designed to protect your money from some or all tax. Below are some of the most familiar tax wrappers available to UK investors. Please note that the information is based on our understanding of the 2020/2021 tax year rules.


With more than two thirds of the UK population saving into one[i], a pension is one of the most accessible and cost-effective tax wrappers around. There are different types of pension available:

  • Some employers offer staff access to a defined benefit (DB) or final salary pension scheme which is based on your earnings and years of service. Contributions are usually a percentage of salary, which are deducted from pay before tax. The scheme trustees decide how these contributions, together with any paid by the employer, are invested. DB pensions are rarely offered to employees anymore.

  • More common these days is a money purchase or defined contribution (DC) pension scheme, which includes both personal pensions - where you make your own arrangements - or employer pensions. In a DC scheme you pay contributions into an investment fund (or funds) of your choice and decide when to take your pension benefits after age 55.

  • A self-invested personal pension (SIPP) is a type of personal pension where you can choose your own investments from a range of assets, including shares, commercial property and funds.

All pensions are designed to pay you an income in retirement and most are portable and can move with you to different companies and providers. The government offers several incentives to ensure you use a pension so you’re financially prepared for life after work:

  • When you pay into a pension, you receive tax relief according to the level of income tax you pay. This means the government effectively adds 20% to your contributions if you are a basic-rate taxpayer, 40% if you are a higher-rate taxpayer, and 45% if you are an additional-rate taxpayer.

  • With a DC scheme, you can normally withdraw up to 25% of your pension savings tax-free from age 55. After that, you will pay income tax on any pension income payments according to your prevailing income tax rate that year.

  • You do not pay capital gains tax (CGT) or income tax on investment gains made within a pension.

  • Any pension savings held when you die can usually be passed down free of inheritance tax (IHT).

  • And if you die before 75, your beneficiaries won’t pay income tax when they come to withdraw the money. If you die after 75, income tax will apply for your beneficiaries.

 There are limits, though:

  • Each year, you can save up to a maximum of £40,000 or your annual salary, whichever is lower, before paying tax. This is called your annual allowance.

  • However, if your total taxable annual income exceeds £240,000, your £40,000 allowance is reduced by £1 for every £2 of income above £240,000, to a maximum reduction of £36,000.

  • There is also what’s called lifetime savings allowance of £1,073,100 (the total amount you can save into your pension, including any investment gains, before taxes are triggered), which is applied when you take benefits from your pension or at age 75, whichever comes first.

Ultimately pensions are a great, tax efficient way to save and invest for a secure retirement.

Individual Savings Account (ISA)

Every year, you can save up to £20,000 into an Individual Savings Account (ISA) – a tax wrapper that typically holds cash, stocks and shares or a combination. Unlike a pension, there is no tax relief when you pay into an ISA, but there are benefits while the money is invested and when you withdraw your savings:

  • If you were to withdraw money from an ISA, either as a fixed monthly amount or by taking the income produced by your investments, no income tax will be applied.

  • Investment returns and the sale of new investments in a stocks and shares ISA are protected from CGT. This can make a big difference if you are in danger of breaching the annual CGT allowance of £12,300. This is the total amount your (non-property) investments are permitted to make in a year (outside of a tax wrapper) before being subject to CGT.

  • The annual dividend tax allowance is now only £2,000. However, any dividends paid to you on your ISA investments will not count towards this allowance. This is especially helpful if you’re a business owner that pays yourself dividends.

  • If you are married or in a registered civil partnership, an additional ISA allowance known as the Additional Permitted Subscription (APS) can be applied for (if offered by the ISA manager).

  • Should you take money out of your ISA, some ISA providers will allow you replace those funds in the same tax year without this contributing to your ISA allowance.

ISA savings are a great way to supplement your retirement income, either to prevent you from entering the next income-tax bracket in a particular tax year, or to leave your pension savings in their wrapper for longer where they remain sheltered from tax.

Don't forget to use your £20,000 personal ISA allowance up before the tax year end. As 5th April falls on the Easter Bank Holiday, please ensure any top ups or new subscriptions are done in good time. Please speak to your financial planner or portfolio manager if you have any concerns.

Lifetime Individual Savings Account (LISA)

If you want to save for a new home, the government also offers savers between the ages of 18 and 40 years a Lifetime ISA (LISA). You can save up to £4,000 a year of your ISA allowance into a LISA, and the government will pay a 25% bonus each year, up to a maximum of £1,000.
You can no longer save into a LISA once you turn 50, but it can remain invested until you are ready to buy a property, and you will pay no CGT on investment gains, and no income tax on your withdrawals. You can only withdraw money from this wrapper without penalties under certain conditions, such as purchasing your first home or when you turn 60.
With low interest rates, the stamp the duty nil rate band remaining at £500,000 until 30 June 2021, and the government guaranteeing 95% mortgages until December 2022 for first time buyers, now could be a great time for you, your children or grandchildren to take advantage of a LISA to get on the property ladder.

Junior Individual Savings Account (JISA)

You can invest up to £9,000 a year into a Junior ISA for anyone under the age of 18. You will never be able to access these savings, and the child can only access it at the age of 18, but it’s a good way of gifting money to shelter savings from CGT and income tax.

Offshore bonds

An offshore bond (also known as an international bond) can be used as a tax wrapper for people who have maximised their pension and ISA allowances, or might not be able to maximise these allowances due to salary or contribution restrictions. It is set up in a jurisdiction with a favourable tax regime, such as the Isle of Man or Ireland. An offshore bond can be attractive for several reasons:

  • Savings can grow quickly by being unencumbered by UK tax on investment growth, though it should be noted that tax could be due when you repatriate the funds back to the UK.

  • You can withdraw up to 5% of your premiums (regular and single) every policy year for up to 20 years without any immediate tax liability. If you do not use your allowance in a particular policy year, you can carry it forward to future years.

  • You can place your offshore bond in trust, for example to benefit your children or grandchildren, which can help reduce the amount of IHT payable on your estate.

  • They can also be written on a life assurance or capital redemption basis which might make a difference when the person setting up the bond dies.

Onshore bonds

An onshore bond tax wrapper has similar features and benefits to that of an offshore bond but with one key difference: tax is paid within the investment fund at 20%.

  • Like an offshore bond, an onshore bond is useful when contribution levels are either restricted or maximised in your pension and ISA. You can withdraw 5% each year tax free, and you do not need to report gains or withdrawals under 5% to HMRC, making them useful for IHT planning and ideal for most trusts.

  • When you invest in an onshore bond, you pay no CGT on investment gains, which means you can switch between funds without incurring a charge.

  • Onshore bonds are usually life assurance policies, and you can set it up to have more than one ‘life assured’, meaning the bond can continue until the last ‘life assured’ has died. You will only pay tax when that happens or when you withdraw more than your 5% annual allowance.

General Investment Account (GIA)

While a General Investment Account (GIA) is not a tax wrapper, they are useful if you have used up your ISA and pension allowances. That’s because you can pay any fees and charges for your investments from a GIA, leaving the maximum amount invested in your pension and ISA. Additionally you can use your GIA to feed your ISA subscription on an annual basis.
Investments in a GIA will be subject to income and capital gains tax throughout, so it is important to ensure the values and the allowances you have are utilised as individuals or as a couple.

Use it or lose it

With the end of the tax year fast approaching, please do speak to your financial wealth planner or portfolio manager to ensure you are considering your investments holistically and making the most of your tax allowances and exemptions.
And remember – for many of the annual allowances and exemptions – if you don’t use it, you lose it.

[i] Source: Office for National Statistics, 2019

Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of this article. The tax treatments and information contained in this article is based on current tax law and HMRC practice as at 3 March 2021 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This article is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

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