ISAs allow you to save or invest your money in a tax-efficient way. Due to the tax advantages, there is a limit to how much you can pay into an ISA each tax year (£20,000 in 2018/19). It is therefore worth taking advantage of your ISA allowance each year, to make sure more of your savings or investments are benefitting from the tax breaks available.
The annual limit can be split amongst the two types of ISAs – Stocks & Shares ISAs and Cash ISAs. Both options work in similar ways to other types of investments or savings accounts, but they also have additional tax benefits.
Other benefits include:
We aim to build long-term relationships between our clients and our qualified independent financial advisers. Our advisers will take the time to get to know you and your objectives and to understand your attitude to investment risk so that the investment options recommended are suitable, making sure we take advantage of the tax advantages available. We can also make sure we review your investment portfolio should the tax rules change.
The main types of ISA are:
Cash ISAs – These work in the same way as a normal savings account, but the interest earned is tax-free. The minimum age to open a Cash ISA is 16.
Stocks & Shares ISAs – These can invest in many assets, including shares, bonds, government gilts or property. In a lot of cases, the money will be invested into a ‘collective investment’ like a Unit Trust or Open-Ended Investment Company (OEIC), but because this is done within an ISA, the money will benefit from the tax advantages that are not available if you invest directly. The minimum age to open a Stocks & Shares ISA is 18.
Junior ISAs – Children under the age of 18 can have a Junior ISA. These work in the same way as an ordinary ISA but the maximum contribution is £4,260 in the 2018/19 tax year. The money can be held in Cash, Stocks & Shares or a mixture of the two. The child will not have access to the money until they become 18.
Lifetime ISAs – These are designed to help people under the age of 40 buy their first home or save for retirement. To be eligible you need to be aged between 18 and 39. The money can be held in Cash, Stocks & Shares or a mixture of the two. For every £4 you contribute, the government will also contribute £1 (paid at the end of the tax year). Up to £4,000 a year is eligible for the government contributions (so the maximum paid by the government each tax year is £1,000) and this will continue until you reach age 50. Any contributions will form part of your overall ISA allowance (£20,000 in 2018/19). Withdrawals made before the age of 60 must be used to purchase a first property worth up to £450,000. Withdrawals made when aged 60 or over can be spent on anything
The maximum that can be paid in is £20,000 in the 2018/19 tax year. This can all go into a Stocks & Shares ISA, a Cash ISA, or a mixture of the two. However, you can only have one of each type in any tax year.
You can transfer ISAs to other companies without it affecting the allowance in the current year. Our advisers can help you find the most suitable place for your ISA investments.
The value of an investment and any income from it can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.
The value of tax benefits depends on your individual circumstances and the laws concerning these can change.
Usually, but this will depend on who you hold the ISA with. Some Stocks & Shares ISAs may have exit penalties if money is withdrawn within a certain timeframe and some cash ISAs may have a minimum timescale in order to benefit from a better interest rate.
It is important to be aware that Stocks & Shares ISAs should be viewed as medium- to long-term investments, so even if you are able to access your money, you should invest with funds that you don’t have any plans for over the next few years.
Each tax year you can have one of each type of ISA, up the maximum contribution amount. It is not possible to have more than one Stocks & Shares ISA or more than one Cash ISA in a tax year.
Yes, you can transfer your ISA to another provider and it won’t affect your ISA allowance in the current year.
Any money held in a Cash ISA will not be at risk of dropping in value. However, any money held on deposit with a company could be at risk if the company was to get into difficulties (although £85,000 will usually be protected by the Financial Services Compensation Scheme).
Any money held in a Stocks & Shares ISA can be invested in a number of assets, including shares, bonds, government gilts or property. Over the longer term the money you invest will have the potential to outperform the returns from a Cash ISA or other deposit-based accounts, but it will also be at risk of dropping in value. The level of risk will differ depending on which assets the ISA invests into and in what proportion. Our advisers will take the time to understand your attitude to investment risk so that the ISA recommended is suitable.
Although you are unable to contribute more than the maximum in any tax year, you are able to save or invest in similar types of products, although these will not have the same tax advantages.
Cash ISAs work in the same way as a normal savings account, so contributions above the annual ISA allowance could be made into a normal savings account.
In a lot of cases, the money in a Stocks & Shares ISA will be invested into a ‘collective investment’ like a Unit Trust or Open Ended Investment Company (OEIC). Therefore, contributions above the ISA maximum can be made into a Unit Trust or OEIC directly as well.
Each tax year you will have a new ISA allowance. Our advisers can review your existing investments to makes sure you are taking advantage of the ISA allowance each year.
Someone aged 16 and 17 can have a Cash ISA and a Junior ISA at the same time.
If the child is aged under 16, they could have a Junior ISA, but not a Cash ISA.
Someone aged 18 or over can have a Cash ISA and/or a Stocks & Shares ISA, but it would no longer be possible to hold a Junior ISA. Any existing Junior ISAs they hold will automatically become adult ISAs and they will have access to the money themselves.
Senior Financial Planner
Adam began his working life in financial services at Norwich Union (as it was back in 1997), where he worked as a Life & Pensions…
We explore five key types of individual savings account (ISA), so you can find the right one