ISAs are something i have heard mention many times without really knowing much about them. As someone who struggles to earn enough to put money aside, i assumed they were of little concern to me, But what are ISAs? We decided to take a deeper look.
An ISA, or Individual Savings Account, is a savings account that you never pay any tax on. It does come with a solitary restriction. That is, the total money you can accumulate in an ISA in a single tax year (the annual ISA allowance) is capped. For the 2019/2020 tax year this allowance is £20,000.
You can see them as like savings in a security box in a vault. The system protects funds in them from tax. But first you need to decide which type to use. There are two basic types of ISA to choose from. These are Cash ISAs and Stocks & Shares ISAs. We explain below what they are so that you can then decide which path you wish to take. That is if you decide that ISAs are a sound move for you.
Cash ISAs are more like an ordinary savings account: you pay cash in and you earn interest, free from tax.
The ISA for investments is called a Stocks and Shares ISA. Instead of just saving, you invest in items such as stocks and shares, bonds, gilts or commercial properties . These should help savings rise over time and any interest or returns you accumulate are again tax free.
Stocks and Shares ISAs may have the potential for quicker or greater growth, but because they are based on the stock market they arrive with much greater risk. Your savings can reduce as well as grow.
In addition to the basic Cash ISA and Stocks & Shares ISA, companies have created different varieties to assist people save for different reasons:
Look at online advice or contact a financial adviser to learn more about which ISA may be best for you.
If you reside in the UK and are over 16 years old, you’re entitled to save a certain amount of money in an ISA annually. This is referred to as the ‘ISA allowance’ and the exact amount can vary year to year. In the 2017/18 tax year the annual ISA allowance was raised from £15,240 to £20,000.
Once your money is in an ISA it cannot be taxed. This rules stays irrespective of how many years you have it in there.