All UK residents have the right to open an Individual Savings Account (ISA) which allows the owner to save their money tax efficiently. This is ideal for people who want to save regularly or for big budget spends. Having ISA offers the owner tax relief from income and capital gains tax to allow the highest return possible on your money.
People often use an ISA to save up for big spends such as weddings, homes, holidays or alongside their pension for retirement income. It is an effective and easy way of saving your own money.
Everyone in the UK above the age of 16 is given an ISA allowance every tax year, for 2016/17 this is £15,240. However, next year (April 2017) this will rise to £20,000. This is a cumulative annual allowance which allows you to increase your savings up to the current years allowance regardless of how much you have saved from previous years.
There are different types of Individual Saving Accounts such as; a Cash ISA, Stocks and Shares ISA, Junior ISA and Lifetime ISA (LISA).
Cash ISA’s offer tax free saving in an account that may offer better interest rates than normal cash savings accounts. Any money put into a Cash ISA is not taxed.
A Stocks and Shares ISA or Investment ISA allows the account holder to put money in to a range of tax efficient investments including; unit trusts, investment trusts, government bonds and corporate bonds. You may also contain a mix of both cash and investments within the ISA. Although there are no guarantees on returns on investments, most people who choose Stocks and Shares ISA’s do so for long term investment returns. You also have the opportunity to buy individual company shares and transfer them into you ISA. The costs of investing within a Stocks and Shares ISA may vary, depending on what you invest in and which platform or provider you have.
A Junior ISA is for those under 18, for them to save money for the future. Junior ISA’s are usually locked so that the owner cannot gain access to the savings until they are 18. Once the owner reaches 18 their savings will be converted into an adult ISA. Grandparents, quite often pay in to the Junior ISA. The annual ISA allowance for under-18’s is lower that the adult ISA allowance; it is currently £4080.
A Lifetime ISA (LISA) will be available from April 2017, this ISA offers UK residents aged 18 to 39 the opportunity to save up to £4,000 a year and get a 25% bonus top up from the government. This means for every £4 you put in to the lifetime ISA the government contribute a further £1. Bear in mind that anything put into this ISA will use part of your £20,000 allowance for 2017/18. The money you put into this ISA can be withdrawn at any time to buy a house worth up to £450,000 for first time buyers or you can leave it until you are 60 without charges or loss of bonus. If you decide to take any money out earlier for anything other than a house, you will face charges of 5% and lose the government top-up.
The new LISA could assist home purchase or retirement income planning.
If you have a query regarding any ISA or investment, please contact our team at People and Business. Click here.