INVESTOR GUIDE ISAs AND JISAs

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1 INVESTOR GUIDE ISAs AND JISAs COLUMBIATHREADNEEDLE.CO.UK 1

2 OVERVIEW Individual Savings Accounts (ISAs) and Junior ISAs (JISAs) are tax-efficient ways to save or invest. They are wrappers that protect your savings or investments from most taxes. ISAs, first introduced in 1999, are available from the age of 16. The current annual allowance for an ISA is 20,000. JISAs are a type of ISA for children under the age of 18 that allows investment up to 4,128 a year in a tax-efficient environment for them, similar to an adult ISA. They were introduced in November 2011 for children who did not have a Child Trust Fund (CTF). KEY FACTS n In the 2017/2018 tax year, you can invest up to 20,000 in an ISA or 4,128 in a JISA. n You can only have one ISA per person per tax year and only one JISA per child. n There are several types of ISAs available (see page 3). n With a Cash ISA, you don t pay any tax on interest. n With a Stocks & Shares ISA or Innovative Finance ISA, you don t pay tax on any income or capital gains from your investment. n You can invest in equities (also known as shares), bonds, funds, investment trusts or other assets linked to the stock market. n You can move your money between equities, bonds and cash whenever you want without losing the benefits of the tax wrapper. n Your investment remains tax-free year after year. n The longer you are invested the greater the opportunity of maximising returns. n If your child has a CTF it can be transferred to a JISA. n Savings in a JISA cannot be withdrawn until the child reaches 18. n JISAs are automatically transferred to an ISA when the child turns 18. 2

3 DIFFERENT TYPES OF ISAs & JISAs CASH ISA/JISA A typical savings account but with the tax-free ISA/JISA wrapper placed around it so that the interest you earn is tax-free. You can choose to have instant access to your money or you can choose a fixed-rate account where your cash is tied up for one, two, three years or longer. Generally, the longer you tie your cash up for, the better the interest rate will be. STOCKS & SHARES ISA/JISA With a stocks and shares ISA/JISA you invest in equities (also known as shares), bonds, funds, investment trusts or other assets linked to the stock market and place your tax-efficient wrapper around that investment. INNOVATIVE FINANCE ISA Launched in April 2016, it is a tax-efficient wrapper for peer-to-peer (P2P) loans, where consumers benefit from tax-free returns on the interest paid by borrowers. The P2P model allows consumers to lend money to other consumers or businesses via a specialist P2P lending company, thus cutting out the need for banks and leading to lower rates for the borrower and better returns for the lender. LIFETIME ISA From April 2017, the Lifetime ISA will allow people to save for a deposit to buy their first home or for their retirement, in a tax-efficient environment. Those between the age of 18 and 40 will be allowed to save up to 4,000 a year and receive a government top-up of 25% (worth up to 1,000 a year) until they are 50. If you use it to save for a home, that property must be worth 450,000 or less. If you are saving for your retirement, you can only take out all your savings tax-free when you are aged 60 or you will lose the government top-up. HELP TO BUY ISA Aimed at people looking to buy their first home. For every 200 you save within the ISA, the government will top-up your contribution with a further 25%. You can save 1,200 in your first month, then you can save up to 200 a month. The maximum total contribution is 12,000, which would result in a maximum government top-up of 3,000. The minimum government bonus is 400, so you need to save at least 1,600 to qualify for the top-up. It is available until 30 November 2019, and you have until December 2030 to claim your government bonus. 3

4 10 TIPS FOR INVESTING 1. DOUBLE-CHECK YOUR RISK PROFILE Before you invest, analyse your attitude to risk to check you are comfortable with the fact that your investments can go down as well as up. This means you might lose some or all of your money. 2. SET A GOAL Having an investment goal, such as paying for a child s university education, will help you commit to your investment and track whether you are on or off-target as that goal edges nearer. It will also help determine how much risk you want to take with your money: if you have 21 years to invest for something, you might be able to take on more risk than if you were investing for 10 years. 3. INCOME OR GROWTH Think about whether you are investing for growth or income. Do you need to take any cash out of your investments on a regular basis or do you simply want your capital to grow over time? 4. GET YOUR HEAD AROUND THE IDEA OF COMPOUNDING Often defined as interest on interest, compound interest (or compounding for short) is when money you make on your investment tops up your original deposit and boosts your ongoing returns, amplifying them over time. In an investment context, you can reinvest dividends to benefit from compound interest, which is why both income and growth seekers like equity income funds. 5. CALCULATE HOW MUCH YOU CAN AFFORD TO INVEST You can often start investing in collective funds from as little as 50 a month (or even less) or with a small lump sum. Even small amounts, given time, can generate meaningful returns. So don t be put off if you do not have a large lump sum. Please note: investment groups have different minimum investments levels, so check before you invest. 6. INVEST REGULARLY Regular investors (those that drip-feed money to their fund on a monthly basis) benefit from something known as pound cost averaging. It means you buy more shares when prices are low, and less when they rise, which should even out peaks and troughs in the market, averaging out the risk. 4

5 7. DIVERSIFY By diversifying across different assets, investment styles, markets, sectors and geographical areas investors aim to minimise the risks of investing. The idea is that if one area or asset falls in value, others may rise, so that your overall portfolio still emerges strongly. 8. DON T PANIC When stock markets are volatile the key is to sit tight. If you are investing for the long term, short-term fluctuations in stock markets should not worry you. If you sell when prices are depressed, you are realising a loss with no chance of getting that money back. But if you sit tight, it is more likely that your investment will once again rise in value. 9. GO ACTIVE If you invest in a passive fund (a fund that replicates an index such as the FTSE 100 Index) your investment will only ever do what that market does, with no chance of outperformance. Whereas active funds, particularly in volatile markets, can move quickly to seek companies better-placed to deal with the market conditions. That doesn t mean all active funds will perform better than the index, but they have the potential to do so. 10. KEEP INVESTING Just because you have invested this year s ISA allowance doesn t mean you shouldn t do the same next year. As you move through life, it makes sense to squirrel away as much as you can for future goals, which can include retirement. The more you can invest over the long term, the more chance you will have of achieving those goals. COMPOUNDING EXAMPLE If Adam invests 1,000 and earns a return of 5% in year one, this adds 50 to his original investment. In year two, he earns 5% not just on the original 1,000, but on the original investment plus the interest earned in year one: 1,050. Investment 5% Interest Total Year 1 1, , Year 2 1, ,

6 HOW TO INVEST IN AN ISA/JISA There are a number of different ways you can buy an ISA or JISA including from a bank or building society, or if you are looking for a stocks and shares ISA or JISA, you can do this directly from a fund management company or via a stockbroker, fund platform or a financial adviser. Please be aware that you might face different costs depending on what you choose to invest in and how you buy it. At Columbia Threadneedle Investments, we only offer Stocks & Shares ISAs & JISAs. You can find out more about our range on columbiathreadneedle.co.uk or mythreadneedle.com. If you are in any doubt about what to invest in, consider using a financial adviser - the upfront cost might be worth it to generate a better return in the long run. If you are a UK-based investor and do not have a financial adviser you can find one in your area by visiting please note that we do not endorse this website or the advisers found on it. MANAGING YOUR ISA/JISA An ISA shouldn t be something you invest in and then forget about. By knowing how your investments are performing and how each year s ISA allowance fits into your overall savings and investment plan, you will be able to see if you remain on track to meet your goals. If you wish to transfer your assets to a new provider for any reason, do not withdraw your money yourself. Ask the new provider to arrange a transfer of assets with your old provider that way you will not lose your tax benefits. If you do want access to your money, however, you should talk to your current provider about cashing-in. Please note that you are unable to withdraw money from a JISA until the child turns 18. Since they were first introduced, ISAs have been extremely popular. According to HM Revenue & Customs*, around 12.7 million ISA accounts were subscribed to in In total, the market value of ISA holdings stood at 518 billion as at April *Individual Savings Account statistics, gov.uk, August

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8 To find out more visit or call * *Monday to Friday, 8am - 6pm. Please note we record calls for your protection and to improve our standards Important information. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Columbia Threadneedle Investments does not give any investment or tax advice. If you are in doubt about the suitability of any investment, you should speak to your financial adviser. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, No Cannon Place, 78 Cannon Street, London, EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com Issued J26402