5th April 2019
With the new tax year looking on the horizon those involved in the economy and finance are gearing themselves up for a hive of activity come April. Dubbed ‘ISA Season’ the start of the 2019/20 tax year has many pondering what to do with their £20,000 ISA limit.
Whether you are au fait with ISAs already, or are planning on utilising your allowance in the coming tax year, the guide below could help you get your head around all things ISA.
ISAs are only available in the UK and the abbreviation – ISA – stands for Individual Savings Account. Introduced in 1999, ISAs allow individuals to hold cash, stocks and shares in a wrapped which makes them tax exempt on interest, capital gains and dividends.
ISAs tend to fall into one of three primary categories; Cash ISAs, Stocks and Shares ISAs and Innovative Finance ISAs (IFISAs). Other ISAs available include the Lifetime ISA, the Help to Buy ISA and a Junior ISA. However, these are more product specific.
Whilst cash ISAs are assumed to be the most popular form of ISA, 2017 saw more money invested into stocks and shares ISAs. Unlike cash ISAs, stocks and shares ISAs are investment products and you can pay into one account per tax year.
Stocks and shares ISAs can offer higher interest rates compared to other types of ISAs which is why they are attractive to many. However, it is worth remembering that with any investment there is the scope to lose capital as well as gain it.
Those who want tax-free returns and have a focus upon saving should consider opening an ISA account. You can only pay into one cash ISA per tax year. But this does mean that you can use your entire £20,000 ISA threshold on one cash ISA if you wished.
Introduced in 2017, IFISAs allow investors using alternative finance platforms to earn tax-free interest on their investments. Investments come with a higher risk profile due to their typically elevated rates of interest and this is something to bear in mind if you are considering an innovative finance ISA.
As mentioned, you will have a £20,000 ISA allowance for the 2019/20 tax year. Whilst you can typically only invest in one cash ISA and one stocks and shares ISA at a time, you are able to split your allowance as you deem fit. You could choose to put the entire maximum allowance into the ISA of your choice. Alternatively, you could split the allowance between a variety of different ISAs.
Anybody in the UK can open an ISA as long as they are 16 years of age or over. There are also junior ISAs (both cash as well as stocks and shares) available to those under the age of 16.
With the new 2019/20 tax year approaching it could be the ideal time to start assessing whether you want to open any ISA accounts. You will be able to make the most of the £20,000 limit before it refreshes again in April 2020.
Analysis of recent years has shown that the majority of ISA action takes place in the weeks leading up to the end of the tax year, so you might want to get your skates on and research some ISA accounts that could be of interest to you. Sometimes you can even secure the best rates the sooner you get your foot in the door.