For many people, the Individual Savings Account (ISA) is an important part of their investment portfolio.
Its advantage is that you do not have to pay tax on interest, income or capital gains.
The amount you can invest in ISAs (the ‘ISA allowance’), is limited.
Over the 2024/2025 tax year, the allowance is £20,000, a limit which has applied since tax year 2017/2018.
Had the allowance risen since 2017 in line with CPI (consumer price index) inflation, it would be about £26,000 today. This means that the tax benefit of ISAs has reduced in real terms, but is still valuable.
There are five types of ISAs – cash ISAs, stocks and shares ISAs, Lifetime ISAs, Innovative Finance ISAs and, for those under 18, Junior ISAs (whose allowance is £9,000).
The names of the first two speak for themselves.
Lifetime ISAs are for people saving to buy a home or for retirement. Only adults under 40 can open a Lifetime ISA and contributions cease at age 50. The savings limit is £4,000 per year, counting to the overall ISA allowance. The government adds a 25% bonus to the holder’s contribution, up to £1,000 per year.
Innovative Finance ISAs are typically used for less liquid investments.
In the Spring Budget 2024, the government announced a new ISA, the ‘UK ISA’. Details are not yet known, but the intention is to allow up to £5,000 per year to be invested tax free in UK companies. This will be in addition to the existing ISA allowance.
Hartey Wealth Management offer financial advice in Cheshire and Oswestry that could help you decide which ISAs are right for you. Speak to a member of the team today for more information.
