Individual Savings Accounts (ISAs)
ISAs remain one of the most tax efficient solutions for your savings. On 1 July 2014, several restrictions were removed to improve flexibility and transfer options.
Under the so-called New ISA (or NISA), Cash ISAs and Stocks and Shares ISAs have effectively been merged, with the overall limit increased to £20,000. This can be invested in either Cash, Stocks and Shares, or a mixture of both.
You'll also be able to transfer new and previous years' ISA investments from Stocks and Shares into Cash, and vice versa, as opposed to previous rules which restricted cash ISAs being transferred into Stock and Shares ISAs.
From Autumn 2015 individuals may be able to withdraw money from some (flexible) cash ISAs and replace it in the same year without it counting towards their annual ISA subscription limit for that year. Please check with your provider.
What is an ISA?
Available since April 1999, ISAs offer an attractive tax-efficient investment to anyone aged 18 or over (16 or over for cash ISAs).
Tax must be paid on the income and profits made from investments in the stock market, either directly or through unit trusts and OEICs.
ISAs, however, serve as a kind of 'wrapper' to protect savings from tax. This allows individuals to invest in a range of tax efficient savings and investments, and pay no personal tax at all on the income and/or profits received.
The Government has said that the ISA will be available indefinitely.
Help to buy ISAs
A new ISA for first time buyers will offer a Government bonus when investors age 16 or above use their savings to purchase their first home. For every £200 a first time buyer saves, there will be a £50 bonus payment up to a maximum of £3000 on £12000 savings. The bonus will be available on purchases of homes up to £450,000 in London and up to £250,000 elsewhere.
The bonus will only apply for home purchase. Savers will have access to their own money and will be able to withdraw funds from their account if they need to for any other purpose.
The main benefits of an ISA
- No personal tax (income or capital gains) on any investments in an ISA.
- Income and gains from ISAs do not need to be included in tax returns.
- Money can be withdrawn from an ISA at any time without losing the tax breaks.
Tax treatment varies according to individual circumstances and is subject to change.
How ISAs work
There are two types of ISA, which may contain one or more of the following components:
- Stocks and shares, in the form of either individual shares or bonds, 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.
Junior ISAs are now also available as both stocks and shares Junior ISAs and cash Junior ISAs, the current contribution limit for these is £4260 per annum (2018/19). Your child can have a Junior ISA if they:
- are under 18
- live in the UK
- weren’t entitled to a Child Trust Fund (CTF) account
The tax efficiency of ISAs is based on current rules. The value of your investment can go down as well as up and you may get back less than you invested. Tax concessions are not guaranteed and may change. The benefit of the tax treatment depends on the individual circumstances.