Most people benefit from a combination of savings and investments. Savings make sure that we have access to cash in case of need. Investments grow our net worth and make it possible for us to achieve our financial goals. Putting our savings and/or investments into a tax-free wrapper helps us to enjoy more of the returns ourselves, hence the huge popularity of ISAs.
ISA allowances tend to go up each year
There are no guarantees, but traditionally ISA allowances have tended to be raised at the start of each financial year. The standard ISA allowance for 2017/2018 is £20,000, this can be put into a cash ISA, a stocks-and-shares ISA or an innovative finance ISA. Anyone (resident in the UK) who has reached the age of 16 can open a cash ISA, stocks-and-shares ISAs and innovative finance ISAs can be opened by anyone who has reached the age of 18.
Cash ISAs come in various forms:
- Instant-access ISAs are basically supercharged savings accounts and handy if you want the reassurance of knowing you can always get at your cash quickly if you need it.
- Regular-saver ISAs tend to give a better rate in return for the commitment, but may have restrictions on how you can access your cash.
- Fixed-rate ISAs give guaranteed returns, but again they may restrict how you access your cash.
- Stocks and shares ISAs allow you to shelter a variety of investments in a tax-free wrapper and eliminate the need to pay capital gains tax on your returns. You may, however, have to pay some form of tax within any funds in which you invest.
Peer-to-peer lending is becoming a major force in the UK, so it’s good to see that it can now be included in ISAs – in theory at least. In practice, P2P lending platforms need to be regulated in order to be included in an IF ISA and this is taking time, however progress is being made. Landbay and Lending Works are already registered. Zopa is nearly there.
Junior ISAs are often just known as JISAs and can be opened on behalf of children under the age of 18 (the sharp-eyed may have noticed that this means 16-18 year-olds can have both JISAs and cash ISAs). For 2017/2018 families will be able to save up to £4,128 on behalf of the child. This money is locked away until the child’s 18th birthday at which point it becomes theirs completely.
The Lifetime ISA has caused both interest and controversy in the press. The interest stems from the fact that it is new and quite different from existing products. The controversy stems over the question of whether it is really an appropriate choice for its target market. Lifetime ISAs can be opened by people aged between 18 and 39 and, in very simple terms, its sole purpose is to help people save for (a deposit on) their first home and for their retirement. Savers can put away up to £4000 of their own money per year, which the government will top up by 25% to make a total of £5000. The money saved can only be withdrawn for a house purchase or after the saver has reached the age of 60. If the saver wishes to access their money in any other situation, the ISA must be closed and the bonus will be lost.
Help to buy ISA
The help to buy ISA will close to new applications in November 2019. At current time, savers who go down this route will see their savings topped up by 25% to a maximum of £3000. There are, however, restrictions on the type of property which can be bought with these savings and, critically, the funds can only be accessed upon completion rather than put towards a deposit.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.