Lifetime ISA v Pension
The Lifetime ISA (LISA) is due to be introduced from the 6th April 2017. Here is a quick summary for doctors of the key differences between a Lifetime ISA and a Pension Plan.
Lifetime ISA: Available for doctors under the age of 40 when they invest.
Pension: For doctors aged 18 or over (also possible for say a parent/grandparent to take out a pension plan on behalf of a child).
Lifetime ISA: Maximum available contribution for doctors is £4,000 per annum (which forms part of the total ISA limit of £20,000 from April 2017).
Pension: Doctors can contribute up to £40,000 per year (although this is tapered for those doctors with annual adjustable incomes over £150,000). The lifetime limit for doctors is £1m from 6th April 2016 unless an election for protection has been made.
Government Top-Up/Tax Relief
Lifetime ISA: There is a Government bonus of 25% based on the annual subscription limit of £4,000 which is added monthly on contributions paid up until the investor reaches 50.
Pension: Income Tax relief on every contribution at the doctor's marginal rate of tax (20%, 40% or 45%).
Lifetime ISA: Eligible doctors can invest in cash or stocks and shares or a mixture of both.
Pension: The fund within the pension is tax free and can be invested in a variety of investments - usually cash, equities, fixed interest deposits/bonds, collectives or commercial property.
Lifetime ISA: Any growth and withdrawals are tax free if: a) the proceeds are used for a first time house purchase or b) encashment is made at age 60 or over.
Pension: Contributions and growth are tax free. On withdrawals, 25% can be taken as a tax free lump sum. The remainder is subject to income tax.
Lifetime ISA: Encashments from the fund are tax-free from age 60, in cases of serious health or where proceeds are used to buy a first home. Outside this, encashments are subject to a 5% penalty after the first year.
Pension: Doctors cannot usually be accessed until they are age 55.
Lifetime ISA: The value of any LISA would be included in the doctors estate for inheritance tax purposes.
Pension: The value of the pension would not be included in the doctors estate for inheritance tax purposes.
If you are a doctor looking for tax efficient investment options then please contact Richard Higgs on 0117 966 5699 or firstname.lastname@example.org or through the website www.wealthwestmedical.co.uk.