When it comes to saving and investing money, anyone interested in avoiding the taxman will have heard of the Individual Savings Account. Introduced in 1999, the ISA is a popular, useful way of generating returns within a tax-free wrapper. Many people think taking out and managing an ISA is complicated, but taking the time to familiarise yourself with the details can make the process a lot easier!
Read our list of important basic points for getting the most out of your ISA…
Q: What is an ISA?
A: Anyone who has savings or investments and wants to protect their money from the taxman may wish to consider an ISA. The money you place within your ISA is protected by a ‘tax-free wrapper’, which under current law exempts the account from income and capital gains tax (tax is deducted on UK share dividends). Remember, tax treatment depends on individual circumstances and tax law may change in the future.
You must remember that with any stock market related investments, your investments may fall as well as rise and you could get back less than you have paid in.
Q: How does an ISA work?
There are two different types of ISA: a ‘Cash’ ISA and a ‘Stocks and Shares’ ISA. The Cash category ISA acts like a normal savings account, except the interest you generate isn’t taxed and the money you put into a Cash ISA is secured.
A Stocks and Shares ISA is an investment product. The company managing your ISA will invest your money in the stock market – any returns generated on the growth of your money are protected from income and capital gains tax (remember tax is paid on UK share dividends). The Stocks and Shares ISA is an investment product. As with any stock market investment, your investments can fall as well as rise – there’s no guarantee you’ll get any return on your money and you could get back less than you have paid in.
Tax treatment depends on individual circumstances and tax law may change in the future.
Q: How much can I invest?
The current subscription limit for an ISA, annually, is £10,680. You can hold both Cash and Stocks and Shares ISAs simultaneously and you may split this amount over both accounts – although there is a cash limit, which stands at £5,340. If you wish, you may invest the entire amount in the Stocks and Shares ISA, but be aware that . The subscription limit doesn’t rollover – so if you have money you wish to save or invest, make sure you do so before the end of the tax year. Please remember, tax treatment depends on individual circumstances and tax law may change in the future.
Q: What kind of access to my money will I have with an ISA?
A: It’s a misconception that an ISA restricts access to your money for a pre-determined length of time. You should check the regulations for individual products but most ISAs will allow instant access to the money inside without losing tax benefits. If you do intend to access your money, it’s important to remember your subscription limit won’t change. You won’t be able to re-invest if you’ve maxed out your subscription limit. If you have invested or saved £1000 in your ISAs, you may generate returns and interest tax free – but you’ll only be able to contribute another £9,680 in that tax year. Tax treatment depends on individual circumstances and tax law may change in the future. Stock market investments may fall as well as rise and you could get back less than you have paid in.
Finding the right ISA product is important since you want your money to be working hard for you! Take the time to look through the products offered by different companies and consider your own savings and investment goals before you take the plunge.