The tax-saving ISA accounts turn 20 years old this year. The “Individual Savings Account” allows you to hold cash, shares, and unit trusts free of tax on dividends, interest, and capital gains.
Having replaced the Tax-Exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs), the ISA accounts come in seven varieties:
- – Basic ISA. This is the most popular type of ISA and is used to shelter cash savings, as well as stock-market investments from both income and capital gains tax.
- – Junior ISA
- – Inheritance ISA
- – Help To Buy ISA
- – Flexible ISA
- – Innovative Finance ISA
- – Lifetime ISA
To celebrate 20 years since the first ISA was introduced, here are seven top tips about the unique savings account:
1. Use it or Lose it
Each adult can save up £20,000 in an ISA each tax year. But – make sure you use your allowance. If you miss one year, or don’t invest the full £20,000, you can’t save your remaining allowance during a following year. Your allowance is refreshed to a maximum of £20,000 at the start of each tax year, (6 April). (When the ISA was introduced in 1999, the maximum savings limit was £7,000.)
2. Spreading Your Cash
You can invest in one of each type of ISA during a tax year. For example – you can invest in a Cash ISA and also a Stocks & Shares ISA within the same year, as long as the total you invest doesn’t exceed £20,000. It isn’t possible to invest in more than one Cash ISA during the same year, unless you are transferring funds from an existing ISA.
3. Here to Stay
Some people query the need for saving in ISAs following the introduction of the Personal Savings Allowance (a threshold amount beneath which interest earned on savings is tax-free). “The need for ISA savings largely depends upon the amount you are saving and/or investing during the tax year,” says Suzanne Spicer, Chartered Accountant at Spicer & Co. “It’s also important to bear in mind that the PSA level is likely to change over time, whereas ISAs are almost certainly going to continue to offer a tax-free wrapper.”
4. It’s All About The “I”
You can’t have a joint ISA. The ‘I’ in ISA stands for ‘Individual’.
5. Fickle Savers are Winners
Many ISA providers accept transfers from existing ISA accounts with other banks. This means that you can keep an eye on interest rates and performance, switching to an ISA with better returns. Always check that there are no penalties involved and that you able to transfer existing ISAs into the account you want to open.
6. Go For It!
According to a survey by Beagle Street, planning for their financial future is the thing most Brits delay (followed closely by exercising, chores and dieting). Common distractions include television, social media and going to make a cup of tea!
7. Leave or Remain?
You are able to withdraw money from an ISA account, (please check the terms of your specific account as penalties may be payable). However – once the funds have been taken out of the ISA wrapper, they cannot be re-invested within an ISA unless the money forms part of your annual investment allowance.
“An ISA account is usually a good investment for most people,” says Suzanne. “It’s important to keep an eye on interest rates, transferring ISA funds as needed and looking for the best home for your annual allowance.”
Have a chat with the friendly team at Spicer & Co Chartered Accountants. Working across Dunstable, Luton, Leighton Buzzard, Houghton Regis and beyond, we love to maximise your potential and minimise your tax. Let’s talk.