If you are looking to maximise your tax-efficient savings, there is now a range of Individual Savings Accounts (ISA) to choose from. And it makes sense to start saving from the beginning of the tax year.
You can invest up to £20,000 in the 2018/19 tax year under your main ISA allowance, using a mix of different types. Each has its own terms and conditions including limits, investment vehicles and access rules.
The original ISA is a tax wrapper, through which you can invest in cash, funds, individual stocks and shares, or a mixture. You don’t pay UK tax on interest earned on a cash ISA, or on income or capital gains derived from funds or other investments in a stocks and shares ISA. Nor are you required to include details of your ISAs on your self-assessment tax form.
There are no general restrictions on when you can withdraw funds, but special terms may apply for individual providers – for example with fixed-rate cash ISAs. Remember, if you’re investing in the stock market you should be ready to leave your money for at least five years.
INNOVATIVE FINANCE ISAS
This ISA allows investors to use some – or all – of their main ISA allowance to invest in peer-to-peer lenders or crowdfunding activities. These may offer attractive interest rates, but it is important to be aware that they can be higher-risk investments and are not covered by the Financial Services Compensation Scheme.
You can put up to £4,000 a year into a Lifetime ISA (LISA) and receive a 25% government-funded bonus, but you have to be under 40 when you start the plan and can only make contributions until your 50th birthday. The funds can be used to buy your first home or you can save for retirement. Contributions are part of your main ISA allowance and there are investment and cash options. However, if you withdraw funds before the age of 60, and are not buying your first home, there will normally be a withdrawal charge equivalent to 2% of the amount you withdraw.
HELP TO BUY ISAS
Help to Buy ISAS are cash accounts for first-time home buyers, but you can only open a new one until November 2019. You can save up to £200 a month, and put in an extra £1,000 in the first month. The government adds a 25% bonus, up to a maximum of £3,000 in addition to any interest earned. So they are similar to the newer LISAs, but you cannot generally invest as much and there is no starting age limit.
Parents and others can save up to a total of £4,260 for a child into a Junior ISA (JISA) each year. JISAs work in a similar way to mainstream ISAs, with much the same cash and investment options available. The key difference is that the child cannot withdraw the funds until their 18th birthday. At this point they can convert it into a regular ISA. You can contribute to a child’s JISA in addition to investing in your own ISA. It is a great way to help a child build up assets for the future. If a Child Trust Fund is held it must be transferred in full to the JISA when one is opened.
INHERITED ISA ALLOWANCES
If a spouse or civil partner dies holding ISA investments, the survivor can make additional subscriptions to their own ISAs equivalent to the value of the deceased’s ISA holdings at the time of their death. In addition to the survivor’s annual ISA subscription limit, currently £20,000.
If you would like advice about which ISA is right for you, please get in touch.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Investing in shares should be regarded as long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances.
The Financial Conduct Authority does not regulate tax advice.
Past performance is not a reliable indicator of future performance.