I'm reading about pension schemes in general, and in the UK in particular. I think I have understood how the tax relief works, still I'm not sure.
Given this quote I have found:
If you are a basic rate taxpayer, for every £100 you save into pension, the Government adds £25 in tax relief, making a total of £125.
First, in that example, that £100 are taken after taxes, that's why the government 'adds' £25. In other words, is like if you could get that £100 before taxes, which is £125, and put it into the pension scheme, right? When you start withdrawing the money, do you need to pay the taxes you didn't pay in the past? (in other words, are tasks actually avoided or only deferred?)
However, this is not how ISAs work. In an ISA, you don't get tax relief on the money you put into it, you get tax relief only on dividends, capital gains and bonds returns, is this correct?
That is, coming back to the first example, If I invest £100 in an ISA, the government will not add those extra £25. Instead, if I get a 5% on dividends I won't pay taxes on that particular benefit (in this case £5), correct?