6th April heralds the start of a new tax year in the UK, and a brand new ISA allowance for everyone. There are several types of ISA to choose from these days, all offering tax-efficient ways to save and invest your money. Here’s a look at the various options, to help you decide which is right for you.
- Your ISA allowance is the amount of money you can save or invest in an ISA without paying tax on your returns. Since 2017, it has been £20,000 per year. This is in addition to the Personal Savings Allowance that gives basic-rate tax payers a £1000 buffer and higher-rate tax payers a £500 buffer to earn interest on their savings, without paying tax.
- There are four main types of ISA available to you if you’re over 18: a Cash ISA, an Investment (also known as a Stocks & Shares) ISA, the Innovative Finance ISA, and the Lifetime ISA.
- Easy-access Cash ISAs are the simplest form of ISA, offering savers a guaranteed rate of return. If you don’t mind tying up your money for up to 5 years, fixed-rate cash ISAs typically offer higher returns than easy access accounts.
- The Innovative Finance ISA enables you to lend up to £20,000 through Peer-to-Peer platforms like Zopa or Funding Circle. You won’t pay tax on any interest or capital gains you receive from the loan.
- The Lifetime ISA has an annual limit of £4000 (which counts towards your £20,000 allowance) and gives you a £1 bonus for every £4 saved. However, use of the funds is restricted to buying your first home or saving for later life, so only consider one if you’re certain you won’t need the money for something else.
- An Investment ISA is a tax-efficient way to invest. You can pick your own investments, buy an investment fund, or ask an investment service like Wealthify to do it for you, and you won’t pay tax on any potential returns.
- Under the current rules, you can only open one each of these four types of ISA per tax year, but you can split your annual ISA allowance between them any way you choose (allocating up to £4,000 to your Lifetime ISA).
- You can use your ISA allowance to open an Investment ISA with Wealthify as long as you are over 18, you are a UK tax resident, and you haven’t started an Investment ISA with another provider already this tax year.
If you have any questions, you can contact us on 0800 802 1800 or by Live Chat.
The tax treatment depends on your individual circumstances and maybe subject to change in the future. Please remember that the value of your investments can go down as well as up and you can get back less than invested. If you’re unsure which type of ISA, or whether investing is suitable for you, you should seek financial advice.
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.