Following the reduction in the Lifetime Allowance (LTA), which limits the amount of savings that can be held in pension pots without being taxed, more high earners are taking advantage of the full annual ISA allowance.
Figures from HMRC show that out of the 860,000 people in Britain who are in the £100k-plus per annum salary bracket, nearly a quarter (24%) used their maximum ISA allowance of £15,240 in the 2015-16 tax year. This represents a rise of 50% since 2011-12, when 16% used the maximum ISA allowance, which was set at £10,680 per annum.
The annual ISA allowance has since been raised to £20,000 for the 2018-19 tax year whereas the LTA limit has been reduced from £1.8m in 2011-12 to £1.03m in the current tax year.
HMRC data suggests that high earners keen to avoid the high tax penalties incurred by exceeding pension limits – a 55% tax charge is applicable to lump sums and 25% to income – have been compensating by using the maximum tax-free ISA allowance. The trend looks set to continue.
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