Cashing in PEP’s and ISA’s
The great thing about Individual Savings Accounts (ISA’s) and there forerunner Personal Equity Plans (PEP’s) is their ‘tax free’ status. Put simply, the Treasury can’t get their grubby fingers on your money once it is invested in these vehicles.
If you have or had invested the maximum sums in these annually since they first became available when PEP’s were launched in 1998, you could have well over £100,000 sheltered form tax now.
Most people don’t realise you can invest for income and so never realise the true value of these arrangements. If you pay Income Tax at 20% every £1 of income is actually worth £1.25 form a taxed source such as a bank or building society account. If you pay tax at 40% every £1 of income is worth £1.67.
If you need cash for some short term emergency, your ISA is just about the last place to take it from. Once the money is withdrawn it can never be re-invested. That means it will have to work a lot harder to achieve the same returns. This is the one occasion when borrowing (especially if you can get it interest free) makes sense.