ISA Allowances

An ISA can provide investors with a tax-free return and be a valuable tool when ensuring that your assets are working hard to maximise their potential.  Anyone over the age of 18 currently has an annual allowance of £20,000 each tax year and are able to utilise this to invest in either a Stocks and Shares or a Cash ISA, or split the allowance across the two.  Any money invested in a Stocks and Shares ISA will benefit from being exempt from Capital Gains and Income Tax and can therefore provide an extremely efficient way to invest your capital.

Cash ISA v Stocks and Shares ISA

Given the tax advantages of ISAs, it is important that you make the most of any money invested in this type of account.  But should you be investing in a Cash ISA, which pays interest tax free, or a Stocks and Shares ISA, which can benefit from investment growth that is not subject to Capital Gains Tax (CGT) or Dividend Tax?  If you are looking at investing your monies on a medium to long term basis and have sufficient cash to cushion you in the event of a ‘rainy day’, we believe that the additional returns that a Stocks and Shares ISA can provide means that this type of account can be preferable.  Cash ISA interest rate remain low and, if invested in a diversified portfolio, we would expect the returns of a carefully selected Stocks and Shares ISA to be higher over the medium to long term.


Lifetime ISA

Launched in April 2017, this account is a progression of the Help to Buy ISA in that it aims to help both those who are looking to buy their first home and also those who are looking to save in order to fund their later life.  An advantage in comparison to a Help to Buy ISA is that your money is not limited to just cash and can therefore be invested in assets such as stocks and shares in order to maximise potential growth.  There is also a higher limit of £4,000 a year which can be contributed to the account, and the government will add a 25% bonus to your savings, so you could receive a maximum of £1,000 per year if you are a UK citizen and under the age of 50.

The account is set up so that you can withdraw the monies free of charges if you are either purchasing your first home or over the age of 60.  However, be careful if you require the monies for any other reason, as the withdrawal will be subject to a 25% charge, which removes the bonus you would have received and a further 6.25% of your own capital!

You can use the account to buy your first home if you meet the following criteria:

  • the property costs £450,000 or less
  • you buy the property at least 12 months after you first open the Lifetime ISA
  • you use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them
  • you’re buying with a mortgage.

Information provided on this website is general in nature and does not constitute financial advice.  We recommend you speak to a financial planner in order that your specific objectives and needs are accounted for.

Whilst Independent Financial Planning will ensure that the information on this site is correct, they are not liable for any damages or loss arising from the website, or any errors in the information provided.

The value of investments and income from them may go down as well as up and you may not get back the amount invested. Tax legislation and the levels of relief from taxation can change at any time.