When you invest within an ISA, any income or growth generated is free from tax.
Adults have an ISA allowance for contributions in the current tax year of £20,000 which can be invested in cash or stocks and shares. Children under the age of 18 can hold a Junior ISA (also known as a “JISA”) and the contribution limit on these for the current tax year is £9,000. You may also be interested in utilising the benefits of a lifetime ISA, of which the annual contribution allowance in £4000. If you don’t use your ISA allowance, then you lose it for good, it can’t be carried forward.
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- Accessibility – long term investment method with the option to withdraw your money if you need too
- Simplicity – ISA’s do not need to be declared on tax returns
- Efficiency – Can help to reduce tax in retirement if used in conjunction with your pension income
When ISA allowances are utilised consistently the amount held can easily build up to provide a tax-free nest egg for the future. ISAs are usually flexible and can be accessed at any time. Therefore we encourage you to consider if any current funds could be utilised towards an ISA before the end of this tax year?
If you have investments held outside an ISA wrapper a Bed and ISA transaction is a simple way to open and fund a new ISA or top up an existing one. Bed and ISA can be useful if you want to take advantage of the tax benefits in your ISA but don’t have readily available cash to invest. Instead, you may have investments held outside of your ISA that you want to remain invested – they can be transferred into an ISA to increase tax efficiency.
There may be a capital gains tax liability if the profit on the sale of the investment outside of the ISA exceeds your annual CGT allowance of £12,300 in 2020/21. However, once in the Isa all dividends and future capital growth are free from income or capital gains tax.
At SFIA our advisers are on hand to answer any questions you may have about the tax year-end or any tax planning matter and can help you navigate the best course of action. Feel free to get in touch for a no obligation consultation.
