How to make the most of your ISA

Transcription

1 Your guide to ISAs How to make the most of your ISA 1

2 Contents Introduction 5 The Tax Benefits of ISAs 6 What is a Cash ISA? 7 What is a Stocks & Share ISA? 7 What other types of ISAs are available? 8 What are Funds? 6 How much can I invest? 9 What are investment supermarkets? 10 How can I make the most of my existing ISA? 11 Important Investment Information Stock market investments may fall in value, so investors could see a return that is less than their initial investment. All investments into the stock market should be considered as long-term investments. All information throughout this guide is correct of 01/12/18, including current tax rules and regulations, which may change over time. We are providing this guide to investors who are confident in their own investment decisions. Should you have any questions about your own investments or you require additional information, please seek expert advice. 2 3

3 Making the most of your ISA The tax An Individual Savings Account (ISA) is not an investment in itself, but a tax wrapper for your investments to protect from some or all of the tax that would otherwise be due. Within your ISA, there is no capital gains or UK tax on income. And since your ISA needn t be declared on your tax return, there s more potential for higher returns. The government continues to introduce different types of ISAs that offer even more choice for savers and investors alike. UK residents aged 18 or over, or 16 for Cash ISAs, can enjoy the benefits of these savings accounts. There is no upper age limit, and your funds can be withdrawn at any time. benefits of ISAs Every tax year, your ISA offers you an allowance that is sheltered from tax. While tax is paid on most savings and investments, your ISA savings and investments are tax free. This means more potential for higher returns. Please note that tax rules and regulations are subject to change. 4 5

4 What is a Stocks & Shares ISA? A Stocks & Shares ISA allows you to hold funds, shares, bonds and more with the possibility of much higher returns. Stocks & Shares ISAs are widely regarded as most suitable for investments that exceed a period of 5 years. While the potential for returns is significantly higher, so is the risk. What other types of ISAs are available? You may choose to invest into a Lifetime ISA or an Innovative Finance ISA. What is a Cash ISA? A Cash ISA operates like a normal savings account, but all the interest is tax free. Your interest rate will depend on your provider, so it s important that you shop around to find the best deal for your circumstances. Cash ISAs offer immediate access with the security of capital and are most suitable for short-term investments. Lifetime ISA The Lifetime ISA allows adults between the ages of 18 and 39 to contribute up to 4,000 and see a 25% government bonus. This money can be used to purchase your first home up to the value of 450,000 or withdrawn tax-free after the age of 60. Withdrawals prior to this age, other than for your first property, will be subject to a 25% charge. Innovative Finance ISA An Innovative Finance ISA allows you to use peer to peer lending platforms to earn interest that is tax free. Introduced in 2016, this new ISA takes on the higher risks and potential for much higher returns of the P2P finance market. The IFISA also enables investors to pay into a Stocks & Shares ISA in the same tax year. 67 7

5 What are Funds? Funds provide a convenient way to invest, pooling together money from a number of investors with a professional fund manager investing in assets on their behalf. These assets include cash, bonds, property and more. When you invest in a fund, you will receive units to represent your proportion of the portfolio. When you invest in a fund, you benefit from the knowledge and experience of a professional fund manager. Of course, it is still important to take note of performance. As with all stock market investments, funds may fall in value and you could see a return smaller than your initial investment. How much can I invest? The current allowance for ISA investments is up to 20,000 per tax year. Your ISA allowance can be split between different ISAs. For example, you may choose to invest the entire 20,000 into your Cash ISA, or you may wish to invest 4,000 into both your Cash ISA and Lifetime ISA, leaving 12,000 to be invested into your Stocks & Shares ISA. What are investment supermarkets? An investment supermarket, or a fund supermarket, provides a platform for placing your money in different types of investments, including funds, shares and bonds. Investment supermarkets have revolutionised the way people invest, offering a number of benefits for ISA investors. These include a wider choice for spreading your investments, cutting the costs associated with investing, simpler dealings and faster turnarounds. As with many investments, you should note that the value of your investment can fall as well as rise, meaning you may see a return that is smaller than your original investment. 8 9

6 How can I make the most of my existing ISA? Interest rates are at an all-time low, and it may be possible to make more of your existing ISA by transferring to a different manager or ISA type. Many investors are now choosing to transfer their existing Cash ISAs to Stocks & Shares ISAs, which have the potential for much greater returns. Remember, unlike cash investments, transferring to a Stocks & Shares ISA means that your funds may also fall in value. Transferring an existing ISA is simple. Find out more about transferring here at

7 12 Disclaimer: investmyisa.co.uk is an independent comparison site to help users compare the best available ISAs. Our service is free to use and you are under no obligation to accept any of the quotes or recommendations you receive. Calls may be recorded/monitored to help improve customer service. Call charges may vary. Registered Address: Compass House, East Leeds, Leeds LS9 8EE.