It was thirty years ago today……………….
In 1986, the then Chancellor, Nigel Lawson, introduced an incentive to encourage the public to save in equities and on the 6th April 1987, Personal Equity Plans were introduced. Investors could now squirrel away up to £2,400 a year into a tax efficient investment that provided shelter from capital gains tax and income tax.
These days, £2,400 might not seem such a generous allowance but back in 1986, the average salary was just over £17,000, so saving up to £200 p.m. would have been a stretch for most people. That was thirty years ago. PEPS lurked quietly in the background for a number of years until the allowance eventually reached £6,000 in 1990/91 and then they suddenly became far more popular.
Following the birth of PEPS, we saw the introduction of the single company PEP and TESSA before ISAs came along in 1999. As of the 6th April, the new ISA allowance has been increased to £20,000, so as a couple, you are able to save up to £40,000 in tax efficient plans. If you add this to the total allowances that have been available since 1987, you get a staggering £567,520.
There is an argument for saying that the increased flexibility rules available for private pensions have led to an erosion in the advantages of ISAs and it is fair to say that the playing field between ISAs and pensions has become more even in recent years, but with maximum allowances on retirement planning coming into effect, It is now more important than ever to look at your combined investment and retirement planning strategy to make the best use of your allowances bearing in mind the complex relationship between funding, tax treatment on contributions and taxation of the income in retirement. As always, we are here to help, Happy New Tax Year!
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