A simple guide to ISAs
An Individual Savings Account (ISA) is a tax-efficient way to save or invest money. ISAs shelter your money from income tax, capital gains tax, and dividend tax, and offer a degree of flexibility which appeals to many. However there are a number of rules and conditions you need to navigate and we’ve listed them here.
What is an ISA and how does it work?
- An Individual Savings Account (ISA) is a tax-efficient way to save or invest money. ISAs shelter your money from income tax, capital gains tax, and dividend tax.
- You can contribute up to a set amount each tax year, which runs from April 6 to April 5.
- The UK Government sets a new ISA allowance each year. This is £20,000 for the current tax year.
- You may not use up more than your annual allowance each year and any unused allocation within that year cannot be carried over to the next year. This means that whether you do or don’t use your full £20,000 allowance in year 1, this becomes replaced with a new £20,000 allowance as you move into year 2. However whatever ISAs you’ve already bought within the allowance each year, assuming no withdrawals, will remain untouched as time goes by and not be impacted by the new yearly allowance.
- You can withdraw money from your ISA at any time – an option which many find very useful.
- A Stocks and Shares ISA is a popular option, and this is where your contributions are invested in the stock market rather than held in cash. This provides greater potential for growth than a cash ISA, with no capital gains tax to pay on any investment returns. However Investments can go down in value as well as up, and bear in mind too that most investment ISAs recommend leaving your funds in place for a minimum of five years, to allow more time for any potential growth.
- There are also Stocks and Shares ISAs designed for Juniors, however these are subject to different conditions including the value of annual allowances, rules on who can open the account and when the monies can be withdrawn. They are frequently bought as an investment by parents/ grandparents for their young children/ grandchildren.
- There are other types of ISAs available in the marketplace.
How we can help
Investigating in Stocks and Shares ISAs is ideal for meeting longer-term investment goals, such as saving for school or university fees, to pay off a mortgage, or to boost your retirement fund. If you’d like to find out more, why not arrange to meet with us at our expense and without obligation. Call us now on 0808 123 4321.
Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.