ISA’s – How best to invest

So you could be one of the 14.5 million adults in the UK who subscribed to an ISA in 2012/2013 and contributed something to the investment made in excess of £57 billion! Or, your children could now be benefiting from investing in a Junior ISA (JISA) after this was introduced in late 2011.

The last decade or more has seen significant investment in ISA’s and they remain an interesting vehicle for investors…the number one investment of choice for many, in fact.

 Some stats and facts:

  • Over £443 billion has been invested in adult ISA’s since their creation in 1999 – This is split roughly 50:50% in cash ISA’s and Stocks & Shares ISA’s (SSISA)
  • Over 557 million has been invested in JISA’s in the last 2 years

With so many UK taxpayers using this mechanism as a means to secure income for their own and their family’s future in a tax beneficial way, it can’t be a bad decision. Here’s how it works and what to watch out for:

 Key Benefits of ISA’s, SSISA’s and JISA’s

  • ISA investments can be set up as either a cash investment or a stocks and shares investment – giving choice according to your view on risk and if you need instant access to funds, simply like a regular savings account
  • Growth of an ISA is tax free – so no Capital Gains Tax
  • Income earned from an ISA is also tax free – so no Income Tax
  • Children and adults can have them – so you can also help to secure your family’s future as well as your own
  • Unlimited transfers can go in and out of the ISA each year with no impact
  • There are generous savings limits
  • If aged between 16 and 18, a child can hold an adult (cash) ISA and a JISA – increased total annual allowance (£9,480)
  • In the year when a child turns 18, they can hold an adult (cash) ISA, a SSISA and / or a JISA – increased total annual allowance (£15,240)
  • It is useful for those aged 65+ with income approaching £26,100 to retain their aged related income tax personal allowance.

What are the savings limits?

In 2013/2014 the individual investment allowances are:

  • ISA: £11,520, of which £5,760 can be in cash ISA’s
  • JISA: £3,720, which can be 100% into a cash ISA

 ISA limits increase in line with inflation each year.

 Who qualifies?

UK tax residents qualify with the following age eligibility:

– 15 and under – eligible for a JISA

– 16 and 17 – eligible for a JISA and / or an adult cash ISA

– The year a child becomes 18 – eligible for a JISA and / or a full adult ISA (ISA and/or SSISA)

– 18+ – eligible for an adult ISA and / or SSISA

Things to watch out for

  •  Whilst transfers are unlimited between providers, it is only possible to invest in one ISA and one SSISA in any tax year.
  • Make sure if moving to another provider that you do not withdraw your funds then reinvest them – instead complete a transfer form to retain your tax status.
  • It is possible to transfer from an ISA to a SSISA, but not the other way around (This does not apply to a JISA though).
  • If you move abroad you cannot continue putting money into the ISA as you are no longer a UK resident for tax purposes
  • The tax free benefit is only applicable until death, after which tax applies and may be subject to Inheritance Tax
  • Where the full allowance has been invested be careful when withdrawing funds and then topping up again later in the year as the limit can easily be exceeded without realising.

 Key tip

Use as much of your ISA allowance as affordable. It’s tax-free and the allowances cannot be carried forward into future tax years, so closing at midnight on the 5th April each year.

Of course, for help in setting up an ISA investment it is always best to seek the help of a professional. Contact us on 020 7376 9333 if you need a name and number of an adviser who can assist.