Creative ways to fund ISAs

There are a number of creative ways to fund an ISA that canny savers and investors can take advantage of.

1. VCT or EIS investment

Use the 30% tax relief on such investments to maximise the ISA allowance, i.e. invest £35,600 into an VCT or EIS, and 30% tax relief will be £10,680. Investors may want to take a lower risk approach with this Stocks & Shares ISA to counter the higher risks more than likely being taken in the VCT or EIS.

2. Investment bond

Make withdrawals from an investment bond of 5% of the original investment and use this to fund their ISA allowance, i.e. £213,600 x 5% = £10,680. A higher or additional rate taxpayer here gets to defer income tax on the investment bond and obviously the ISA is tax free. Perhaps when all the accumulated 5% allowances have been utilised the bond can be cashed up as the individual (or their spouse) is by then a basic rate taxpayer.

3. Immediate Vesting pension

Those over 55 with relevant earnings can contribute to a pension and settle benefit immediately, so the combination of tax free cash and tax relief can fund an ISA, i.e. contribute £16,430 to an immediate vesting personal pension. 40% tax relief on this is £6,572 and 25% tax-free cash is £4,107.50, which together total £10,679.50. Plus there will be income for life from the £12,322 used to purchase the annuity.
 
By Philip Challinor of Chatfield Private Client