What is an ISA?
Available since April 1999, ISAs offer a tax-free wrapper to anyone who is eligible.
ISAs allow individuals to invest in a range of investments and savings and pay no personal
tax at all on their income and/or any profits received.
There are 4 main types of ISAs:
- Cash ISA
- stocks and shares ISA
- lifetime ISA
- innovative ISA.
All of your allowance can be invested in stocks and shares or in cash. Alternatively, you can
split the amount by investing in cash and stocks and shares with either the same or a
different provider, subject to the maximum allowance.
You will also be able to transfer money saved in previous years' cash ISA holdings to stocks
and shares ISAs or in the opposite direction i.e., stocks and shares ISA to a cash ISA. (This
does not affect your current years allowance)
ISAs and the financial year
With an ISA you can put up to /£20,000 into your account every financial year.
You can split the allowance across all your different types of ISAs with the £20000.
An example of this would be:
If you are planning on putting £20000 into your ISA accounts, you could put £12000 into your cash
ISA and £8000 into your stocks and shares ISA.
For a lifetime ISA you can only put a maximum of £4000 into this account each year. This is still
included withing the £20,000 you can place into you ISA accounts.
Any Investment growth made in your ISA accounts will not count towards the £20000 and will not be
affected by taxes such as: Capital gains tax and income tax.
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This one of the most common ISAs what people use as it is low-risk way to save your money.
Cash ISAs split into 2 sections known as variable and fixed rate.
With a variable cash ISA, the rate can change at any time, but you are able to take out
money from the account whenever you want with easy access.
For the Fixed cash ISA, the rate of the interest is fixed for the duration of the account, the
longer the account is set to be open the more likely you will have a higher rate. Usually, you
can’t access the money until the term has ended.
EXTRA – For the flexible cash ISA you can take out money from the account and replace it
without affecting the £20000 allowed to be placed into your ISA accounts.
A Stocks & Shares ISA can be used to save up for a number of purposes, whether it be saving for children’s education, paying off your mortgage, a rainy day or to simply accumulating wealth.
With a lifetime ISA you can open an account if you’re between the ages 18 – 39.
You can then hold the money in this account up until you buy your first house of a price up to
£450000 or up until you are 60 years old.
With this ISA account you can put up to £4000 per financial year up until you are 50.
With your ISA you get 25% of all the contributions you make to your ISA (money you put in the
account) added onto the amount in your account when withdrawing the money from the
government.
However, in most cases if you want to withdraw your money without any of the reasoning stated
above you will pay a charge of 25% of what you take out of your account.
NISA (New individual saving account)
From 1 July 2014, legislation have changed to announce the arrival of the ‘New ISA' (NISA)
The NISA may hold the following:
• Stocks and shares, in the form of either bonds or individual shares, 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.
It is possible for you to make withdrawals from your ISA at any time without loss of tax
relief. However, once the maximum amount has been subscribed to an ISA in a tax year,
further investment will only be allowed that tax year, equal to any amounts withdrawn
during the same period.
ISAs and the financial year
With an ISA you can put up to £20,000 into your account every financial year.
You can split the allowance across all your different types of ISAs with the £20000.
An example of this would be:
If you are planning on putting £20000 into your ISA accounts, you could put £12000 into your cash
ISA and £8000 into your stocks and shares ISA.
For a lifetime ISA you can only put a maximum of £4000 into this account each year. This is still
included withing the £20,000 you can place into you ISA accounts.
Any Investment growth made in your ISA accounts will not count towards the £20000 and will not be
affected by taxes such as: Capital gains tax and income tax.
Are you Eligible?
To be eligible to invest for an ISA, an investor must be an individual (i.e., not a company or
trustee), 18 years old (16+ for a cash ISA), who is resident and ordinarily resident in the UK
(or is a Crown servant serving overseas or the spouse of such an individual who
accompanies their spouse abroad).
If you become ineligible to invest in an ISA, any existing ISAs will continue to be exempt
from UK tax. Future contributions to regular investment ISAs must be terminated and no
further single contributions may be made.
What are the benefits of investing in a Stocks & Shares ISA?
Cash ISAs v Stocks & Shares ISAs.
Stocks and shares Isa are not restricted by providers interest rate. cash isa rates tend to lower than inflation, meaning what is saved in them can remain static.
Comparing stocks & shares Isa investing money in this type of investment can mean a chance of increased growth. There is a risk that any money you invest you may get less than you put in.
Cash ISA are recommended for short term saving e.g holiday, or for emergencies. Stock and shares are classed as long term investments 5 years+. The benefit of investing for 5 years+ is a chance of greater growth.
It’s important to remember that, as with all investing, your capital is at risk in a General Investment Account. Investments can fluctuate in value and you may get back less than you invest.
Different investments provide
- capital and growth
- income
- A combination of income and growth
What is a General Investment Account?
Investing for longer means putting money into products or funds linked to the stock market. There is a risk of investing in funds, which could rise or fall in value. Investors need to be prepared to tie their money up.
There is no limit on how much you can invest each year. Potential for growth but capital is at risk and returns not guaranteed.
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