Investors and savers wanting to look after their money in a tax-efficient manner may benefit from an Individual Savings Account (ISA). An ISA is a potential solution for many, providing the opportunity to shelter assets from Capital Gains Tax (CGT) and Income Tax. With an annual tax-efficient allowance of £20,000 for ISAs, and those under 18 having a £9,000 allowance for Junior ISAs (JISA), they are perhaps worth a closer look.
In this video, James Igoe, Investment Manager at Redmayne Bentley, and Tess Williams, Redmayne Bentley’s Head of Financial Planning, discuss the topic of ISAs and JISAs. The pair also explore how investing in a Stocks and Shares ISA could provide returns over time and answer your frequently asked ISA questions.
Capital at risk.
What is a Stocks and Shares ISA?
An ISA is a UK savings or investment account that can be used to shelter money held within it from tax.
You do not pay tax on any interest or income generated from the funds held within an ISA, and you do not pay Capital Gains Tax on investments held within an ISA.
Within a
Stocks and Shares ISA you can own any investment you choose as long as it is listed on a regulated stock market, such as the London Stock Exchange.
Stocks and Shares ISAs can also include unit trusts and investment funds, corporate bonds and government bonds.
Who can open a Stocks and Shares ISA or Junior Stocks and Shares ISA?
You must be 18 years of age to open a Stocks and Shares ISA, with
Junior ISAs (JISAs) available from birth to age 18.
Parents or guardians can open a JISA, but the money belongs to the child. The child can take responsibility for the account from age 16 onwards, but cannot release the money until they turn 18.
How much can I invest in a Stocks and Shares ISA, and what are the rules?
Every UK resident over the age of 18 has an annual ISA allowance. This annual allowance covers each tax year, beginning on 6
th April and ending on 5
th April the following year.
The 2024-25 annual Stocks and Shares ISA allowance is £20,000, and this is not due to change until at least 2030.
Similarly, children up to the age of 18 can have a JISA. Each tax year, a JISA has a £9,000 annual allowance.
Before the child reaches the age 16, a parent or guardian will have control of the JISA but they cannot withdraw funds. At the age of 16, the child can then assume control, but they will not be able to withdraw any funds until they reach 18 years of age.
Can I have more than one Stocks and Shares ISA?
Yes, you can contribute to more than one Stocks and Shares ISA in the same tax year, provided you do not contribute more than your £20,000 annual allowance across them all. The £20,000 annual allowance relates to you personally, rather than to each ISA.
For example, you could opt to put £10,000 in one Stocks and Shares ISA and £10,000 in one with another provider.
You can also choose to split up your allowance and put money into a Cash ISAs and investments into a Stocks and Shares ISA, or both types. It is up to the individual how they use their allowance. For example, you could opt to put holdings to the value of £10,000 in one Stocks and Shares ISA, £5,000 in another Stocks and Shares ISA with another provider and £5,000 in a Cash ISA.
However, JISA’s are slightly different. Not only does the account belong to the child, but they are only able to have one Stocks and Shares JISA and one Cash JISA at any point in time. You can move JISAs between providers.
What makes Stocks and Shares ISAs tax efficient?
You do not pay tax on any interest or income generated from the funds held within an ISA, or capital gains from investments in an ISA.
By investing within an ISA each year, you can hope to increase the proportion of your assets that are not subject to Income Tax or Capital Gains Tax.
Other types of ISAs
There are numerous types of ISAs available. These are:
- Stocks and Shares ISAs
- Cash ISAs
- Lifetime ISAs
- Innovative Finance ISAs
- Help to Buy ISAs
- Junior ISAs or JISAs
There are some limitations to these ISAs. As of 30th November 2019, Help to Buy ISAs can no longer be opened but money can still be paid in by those who opened one before this date.
Lifetime ISAs are only available to 18-40-year-olds, and they have other limitations.
It may be beneficial to seek financial advice to ensure the product you are interested in meets your needs.
What are the risks with Stocks and Shares ISAs?
It’s always important to remember that the value of investments can go up as well as down as well as up and you may receive back less than you paid in.
For this reason, it might be useful to view Stocks and Shares ISAs as a medium-term to long-term investment, seek appropriate advice and ensure your holdings are kept under review.
The Stocks and Shares ISA is simply a tax-efficient wrapper and the type of investment, or cash, that you put in them is entirely up to the individual.
One downside of ISAs compared to pensions is that, with the exception of the Lifetime ISA or Help to Buy ISAs, there is no tax relief from the Government on the funds you pay in.
There may be other types of ISAs or savings options that would better suit your circumstances and you may wish to speak to a professional financial advisor to better understand your choices.
More Information
For further information about our services,
contact Redmayne Bentley.
The latest Government information about Stocks and Shares ISAs is available here:
Individual Savings Accounts (ISAs): Overview - GOV.UK (www.gov.uk).
The latest information about Junior Stocks and Shares ISAs (JISAs) can be found here:
https://www.gov.uk/junior-individual-savings-accounts.
Please note that tax treatment depends on the specific circumstances of each individual and may be subject to change in the future.
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a reliable indicator of future performance.
This communication is for information only and does not constitute a recommendation or financial advice.