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If you are looking to save, either regularly or a lump sum, there are many options. The best solution depends on when you may need access to your money and the level of risk you want to take.
For longer-term investments, cash provides no protection against inflation and in real terms its purchasing power will decrease. Over the shorter term cash provides certainty and stability.
Investments in stocks and shares, for example, may provide the potential for longer term growth, but because of market volatility may not be suitable for those with shorter time horizons.
An ISA is an Individual Savings Account.
There are 3 types:
With a cash ISA, you don’t pay tax on any interest.
With a stocks and shares ISA or an innovative finance ISA, you don’t pay tax on any income (interest or dividend) or capital gains from your investments.
If you complete a tax return, you don’t need to declare any ISA interest, income or capital gains on it.
Each tax year you can put money into one of each kind of ISA. The tax year runs from 6 April to 5 April.
You can save up to £20,000 in one type of account or split the allowance across 2 or 3 types. For example, you could save £15,000 in a cash ISA, £2,000 in a stocks and shares ISA and £3,000 in an innovative finance ISA in one tax year.
Your ISAs won’t close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.
The government set this limit and it is currently £20,000.
Cash ISAs can include:
Stocks and shares ISAs can include:
You can’t transfer any non-ISA shares you already own into an ISA unless they’re from an employee share scheme.
Innovative finance ISAs can include peer-to-peer loans, which are loans that you give to other people or businesses without using a bank. You can’t transfer any peer-to-peer loans you’ve already made into an innovative finance ISA.
There are Junior ISA’s available that you can pay into on a child’s behalf. The limit is £4,368 per annum.
At age 16 the child can take control of the ISA, but cannot access the money until age 18.
Your ISA ends on the date of your death. There will be no Income Tax or Capital Gains Tax to pay up to that date but ISA investments will form part of your estate for Inheritance Tax purposes.
Your ISA provider can be instructed to sell the investments and either:
If your spouse or civil partner dies
If your spouse or civil partner died on or after 3 December 2014, you can inherit their ISA allowance. As well as your normal ISA allowance, you can add a tax-free amount up to the value they held in their ISA when they died.
Introduced in April 2017, the Lifetime ISA is available to investors under the age of 40 to contribute up to £4,000 in each year. The government will then provide a 25% bonus on these contributions at the end of the tax year.
The lifetime ISA is designed to help first time buyers purchase their first home and therefore penalties may be applied should the funds be withdrawn for any other purpose and these should be considered before investment.
For further information on the lifetime ISA, read our article here
The lifetime ISA may also be used for retirement planning and we will cover this in detail shortly.
The information above should not be relied upon as financial advice and we recommend you give us a call to discuss your own circumstances.