While we’re all recovering from the financial expense of Christmas and the purse-squeezing discomfort of the Jan 31st tax return, it’s nice to have some good news to share with you. Or rather, good news if you act on it before time runs out in April.
We’re talking about ISAs.
Think of an ISA as a tax-free ‘wrapper’ that shelters your savings and investment funds. Before July 2015, there were rules limiting how much money you could place in each ‘wrapper’, cash or shares, but now those rules have been completely removed. That means you could put the entire £20,000 into a Cash ISA, an Investment ISA or an Innovative Finance ISA or you could divide it up between all the different ISAs available. However, slight restrictions do still remain on Lifetime ISAs and Help to Buy ISAs – you can only put £4,000 into a Lifetime ISA each year, and first-time home buyers can only save £1,200 in the first month of opening their Help to Buy ISA and up to £200 a month thereafter. It’s also worth noting that Help to Buy ISAs won’t be available after November 30 2019 but savers can still transfer a Help to Buy ISA into a Lifetime ISA during 2017/18 and it won’t count towards the £4,000 maximum contribution for the year.
Cash ISAs are by far the most popular option but they’re subject to various rules and penalties, depending on whether you choose an Instant-Access Cash ISA or a Fixed-Rate Cash ISA. Interest-Access Cash ISA’s are more vulnerable to negative fluctuations in bank rates, so a Fixed-Rate Cash ISA is a more tax-efficient solution if you’re able to make a large lump sum investment. However, no cash ISA is ideal for long term saving.
On the other hand, a Stocks & Shares ISA isn’t just free from UK income tax, you won’t have to pay capital gains tax on it either. They allow you to place your money in a range of different investments, including unit trusts, corporate bonds and individual company shares, and they offer the possibility of higher returns. But the value of your investments can go down as well as up.
An Innovative Finance ISA is a ‘wrapper’ that contains peer-to-peer loans, cutting out the bank by matching investors up with borrowers. Because banks aren’t involved they tend to earn higher rates of interest, and the ‘good karma’ of being able to choose which projects you want to invest in. However, only a handful of peer-to-peer lenders are currently authorised to provide ISAs.
Finally, the Lifetime ISA (or ‘Lisa’) was launched in April 2017 as a way for first-time home buyers to fund a property purchase and save for their retirement. You have to be over 18 and under 40 to open an account but contributions (including an annual 25 p/c government bonus) are paid until your 50th birthday.
ISAs hit a bit of a slump during 2016/2017 but they’re already recovering – one provider reported that almost 1,500 Lifetime ISAs were opened between Christmas and New Year alone (50+ of them on Christmas Day (anything to avoid basting the turkey, we suppose!)) – so if you want to disappoint the taxman and hold onto as much of your hard-earned money as possible (and who doesn’t?), ISAs are well worth giving serious consideration to. But please don’t wait until April to think about it. At Moyes Investments, we can help you make informed ISA decisions and find the very best ISA deals. This is one opportunity you should wrap up as quickly as possible so contact us on 01638 429975 or [email protected] and we promise it won’t be a taxing conversation!