Individual Savings Accounts (ISAs)
ISAs remain one of the most tax efficient solutions for your savings. On 1 July 2014, several restrictions were removed to improve flexibility and transfer options.
Under the so-called New ISA, the contribution limit for Cash ISAs and Stocks and Shares ISAs has effectively been merged, with the overall limit increased to £20,000. This can be invested in either Cash, Stocks and Shares, Lifetime or Innovative Finance ISAs, or a mixture of types.
You'll also be able to transfer new and previous years' ISA investments from Stocks and Shares into Cash, and vice versa, as opposed to previous rules which didn’t allow stocks and shares ISAs to be transferred into Cash ISAs.
From Autumn 2015 individuals may be able to withdraw money from ISAs and replace it in the same tax year without the replacement counting towards their annual ISA subscription limit for that year. This only applies if the ISA has adopted the Flexible ISA rules. Please check with your provider.
What is an ISA?
Available since April 1999, ISAs offer an attractive tax-efficient investment to anyone aged 18 or over (16 or over for cash ISAs).
Tax must be paid on the income and profits made from investments in the stock market, either directly or through unit trusts and OEICs.
ISAs, however, serve as a kind of 'wrapper' to protect savings from tax. This allows individuals to invest in a range of tax efficient savings and investments, and pay no personal tax at all on the income and/or profits received.
The Government has said that the ISA will be available indefinitely.
Help to buy ISA
A new ISA for first time buyers offers a Government bonus when investors age 16 or above use their savings to purchase their first home. For every £200 a first time buyer saves, there will be a £50 bonus payment up to a maximum of £3,000 on £12,000 savings. The bonus will be available on purchases of homes up to £450,000 in London and up to £250,000 elsewhere. The bonus will only apply for home purchase. Savers will have access to their own money and will be able to withdraw funds from their account if they need to for any other purpose.
A Lifetime ISA is very similar to the Help to Buy ISA, providing the same 25% bonus payment on top of individual contributions. However, limits apply and the Lifetime ISA has to be opened between the ages of 18 and 39 and, in order to benefit from the 25% bonus, money must be held in the ISA until the individual is aged 60. An exception is made if the money is being withdrawn to purchase a first home, in which case the bonus is available regardless. The Lifetime ISA annual allowance is £4,000 and it can be held alongside other ISAs, but it forms part of the £20,000 overall individual allowance.
Innovative Finance ISA
Investing in an Innovative Finance ISA potentially offers higher returns. However, it operates in a similar fashion to crowdfunding so as a result, the risks to capital may also be very high. Annual Investing in an Innovative Finance ISA potentially offers higher returns. However, it operates in a similar fashion to crowdfunding so as a result, the risks to capital may also be very high. Investments in these ISAs count towards the overall £20,000 ISA allowance. You should seek financial advice before considering this form of ISA.
The main benefits of an ISA
- No personal tax (income or capital gains) on any investments in an ISA.
- Income and gains from ISAs do not need to be included in tax returns.
- Money can be withdrawn from an ISA at any time without losing the tax breaks.
Tax treatment varies according to individual circumstances and is subject to change.
How ISAs work
There are four types of ISA, which may contain one or more of the following components:
- Stocks and shares, in the form of either individual shares or bonds, or pooled investments such as open-ended investment funds, investment trusts or life assurance investments.
- Cash, usually containing a bank or building society savings account.
- Peer to peer loans (Innovative Finance ISA)
Junior ISAs are now also available as both stocks and shares Junior ISAs and cash Junior ISAs, the current contribution limit for these is £4368 per annum (2019/20). Your child can have a Junior ISA if they:
- are under 18
- live in the UK
- weren’t entitled to a Child Trust Fund (CTF) account (or if they transfer their CTF funds to a JISA and close their CTF first)
The value of your investment can go down as well as up and you may get back less than you invested.
Nobody likes to pay tax and many investors will want to mitigate the imposition of income tax and capital gains tax that they have already suffered and inheritance tax that their estate is going to suffer in the future.
We are able to offer a range of planning strategies and investments to help those clients meet their goals within the range of what they can afford.