Individual Saving Accounts (ISAs) were launched by the government way back in 1999 to provide savers with a tax-efficient plan that would enable them to shelter their money from tax and enjoy a tax-free lump sum. The same benefits still apply today and, with the end of the old tax year approaching and the new ISA season about to start on April 6th, an ISA should still be one of the first considerations for any UK tax payer looking to invest and save.
The government is continuing to make ISAs an attractive proposition and has steadily increased the annual allowance in terms of how much investors can save tax-efficiently each year. The current annual allowance for an individual saver stands at £15,240 and there is increased flexibility in how this total amount can be split between cash, and stocks and shares ISAs. These new benefits have received a considerable amount of publicity, but how many of us have really taken notice of the changes and the increasingly beneficial option these plans provide?
Research released by Santander in 2015* suggests that 74% (37.4 million) of people are either unaware or mistaken about the increase in the allowance and the increased flexibility in savings options. Clearly much of the message has simply not got through and many of us are still not taking advantage of what should be among the first considerations when it comes to savings for the future.
After all, in today’s increasingly complex financial climate it really does make sense to remind ourselves of just what we stand to gain by investing the maximum possible amount in this advantageous savings scheme. Here are just some of the main benefits:
- The current adult allowance means you can invest up to £15,240 in the tax year
- You have the flexibility to invest the total amount in a cash or stocks and shares ISA or a mixture of both
- You don’t pay tax on any income or capital gains you’ve made on your ISA investments
- There’s no need to declare your ISA on any self assessment tax returns
- You can access the money you’ve invested at any time
So which type of ISA to choose? Most savers fall into two camps – those who want to avoid any risk whatsoever and opt for the cash ISA option, and those who are prepared for an element of risk in their investment with the possibility of higher returns normally choose an investment ISA.
If you are concerned about the low returns you might achieve with a Cash ISA, but are cautious about the possible volatility inherent in the stock market, choosing to switch to a Stocks and Shares ISA provided by a tax-saving mutual may well offer you the best of both worlds; tax efficiency, tax benefits and the assurance that a mutual society’s only responsibility is to their members and their interests.