ISAs (Individual Savings Account) are one of the most popular kinds of savings accounts in the UK. Two years ago, when ISAs celebrated their 15th birthday, 24.4 million Brits held an ISA, accounting for almost 50 per cent of the adult population. At the time, total market value of ISA holdings stood at £443 billion. Starting out on the savings and investment ladder, for many the ISA is the next step after they’ve set up a bank deposit account for savings and investments.
The returns are broadly free of tax and in most cases, the ISA is a pretty straightforward vehicle in which to store your cash or investments. But in the last few years, we have seen the ISA space develop. So, what types of ISA are there?
Whereas initially, there were only two types of ISA – cash or stocks and shares - there are now several types, each with their own rules and restrictions, making a decision around which ISA to choose a lot more complicated. The amount that can be invested differs, as do the age limits and rules on withdrawals – all important considerations.
So in addition to cash and stocks and shares ISAs, what types of ISAs are there for investors?
- Junior ISA: launched in 2011 aimed at those under the age of 18. A junior ISA can be held in cash or shares, but it must be held until age 18
- Innovative Finance ISA: best understood to be an ISA that allows peer-to-peer lending. But the market is still at an early stage, and we would see this as a particularly high risk area
- Help to buy ISAs: this is a cash ISA that will benefit from a Government top up if held for the required period and, as the name suggests, is used to purchase a house. But the total amount of investment is modest
- Lifetime ISAs: seen by some as the beginning of a move by the Government to bring pensions more into line with ISAs, Lifetime ISAs will be available from April 2017. With more restrictions than a typical stocks and shares ISA, but potentially greater tax benefits, only those under the age of 40 are eligible. Withdrawals other than for certain house purchases or retirement are subject to hefty penalties.
It is important when moving your ISA between providers, to ensure the ISA is transferred and not encashed and reinvested, as transfers do not affect your annual investment allowances. While some providers allow you to withdraw, then refund your ISAs (the so called the Flexible ISA), some restrict you to the overall contribution, which is another important consideration.
So where ISAs were once a fairly simple investment vehicle, the landscape has got just that little bit more complicated. Having your wits about you, understanding your options and getting the right advice is crucial in making the most of the ISA options out there.
Canaccord Genuity Wealth Management
Furqan is a Wealth Adviser for Canaccord Genuity Wealth Management, providing bespoke wealth planning and portfolio management to high net worth individuals. He is a member of the Chartered Insurance Institute and the Personal Finance Society
Canaccord Genuity Wealth Management is an ISA provider and discretionary fund manager of ISA funds. We are able to advise on existing ISA portfolios, as well as new ISA investments, so please contact us to discuss.
Tax treatment set out above is based on our current understanding of UK legislation. It is a broad summary and cannot cover every circumstance, it does not constitute advice. Tax benefits depend upon the investor’s individual circumstances; levels and bases of taxation may be subject to change in the future.
You should not take, or refrain from taking, any action based solely on this article. The investments discussed in this article may not be suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment advisor.
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