ISAs are tax-exempt savings accounts available to individuals. At Swindells, we advise individuals on tax efficient investments in the East Sussex area. Some information about ISAs is given below.
Successive governments, concerned at the relatively low level of savings in the UK economy, have over the years introduced various means by which individuals can save through a tax-free environment.
ISAs are tax-exempt savings accounts available to individuals aged 18 or over who are resident and ordinarily resident in the UK. ISAs are only available to individual investors and cannot be held jointly.
The overall annual savings limit remains at £20,000 for 2024/25.
The government announced in the Spring Budget 2024 that a new UK ISA would be launched with a £5,000 allowance in addition to the £20,000 that will allow people to invest in UK-focused assets.
Investors are allowed to invest in a cash ISA, an investment ISA, an Innovative Finance ISA, or a combination of the three, subject to not exceeding the overall annual investment limit.
Investors are able to transfer their investments from a stocks and shares ISA to a cash ISA (or vice versa).
ISAs are allowed to invest in cash (including bank and building society accounts and designated National Savings), stocks and shares (including unit trusts, investment funds and government securities with at least five years to run) and life assurance.
A wide range of securities including certain retail bonds with less than five years before maturity, Core Capital Deferred Shares issued by building societies, listed bonds issued by Co-operative Societies and Community Benefit Societies and SME securities that are admitted to trading on a recognised stock exchange are eligible to be held in an ISA, Junior ISA or Child Trust Fund (CTF).
The Innovative Finance ISA can be used for loans arranged via a peer-to-peer (P2P) platform. Peer-to-peer lending is a small but rapidly growing alternative source of finance for individuals and businesses. The Innovative Finance ISA may also invest in debt securities offered via crowdfunding platforms. Existing peer-to-peer loans or crowdfunding debentures cannot be transferred into Innovative Finance ISAs.
Money can be withdrawn from an ISA without any of the tax benefits being lost. ISA savers may be able to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year where they hold a 'Flexible ISA'.
An additional ISA allowance is available for spouses or civil partners when an ISA saver dies. The additional ISA allowance is equal to the value of a deceased person's accounts at the time of their death and is in addition to the normal ISA subscription limit. There are time limits within which the additional allowance has to be used. In certain circumstances an individual can transfer to their own ISA non-cash assets such as stocks and shares previously held by their spouse.
In most cases, it is envisaged that the additional allowance will be used to subscribe to an ISA offered by the same financial institution that provided the deceased person's ISA. As the rules allow the transfer of stocks and shares directly into the new ISA, in many cases the effect will be that the investments are left intact and the spouse becomes the new owner of the deceased person's ISA.
The tax advantaged treatment of ISAs continues whilst an individual's estate is in administration.
The income from ISA investments is exempt from income tax.
Any capital gains made on investments held in an ISA are exempt from capital gains tax.
Any ISAs held on death will form part of a person's estate for inheritance tax purposes.
The halving of the dividend allowance from £1,000 to £500 in 2024/25 and the reduction in the CGT annual exempt amount from £6,000 to £3,000 in 2024/25, make ISA accounts more attractive for tax efficient share investments going forward.
Many people use an ISA in the first instance to save for a rainy day. Since they were first introduced people have used them to save for retirement, to complement their pension plans or to save for future repayment of their mortgage to give just a few examples. We have known young people, wary of commitment to long-term saving start an ISA and when more certain of the future use it as a lump sum to start another financial plan.
The Help to Buy ISA, which provides a tax-free savings account for first time buyers wishing to save for a home.
Help to Buy ISA accounts were available until 30 November 2019, when this type of account was withdrawn for new savers. Those individuals that already have an account can keep saving until 30 November 2029, when accounts will close to additional contributions. An individual must claim their bonus by 1 December 2030.
The scheme provides a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.
Help to Buy ISAs are subject to eligibility rules and limits:
A Lifetime ISA is available for adults under the age of 40. Individuals are able to contribute up to £4,000 per year and receive a 25% bonus (up to £1,000) on the contributions from the government, up until the age of 50. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.
The Lifetime ISA can be used to invest in cash or stocks and shares.
Further details of the Lifetime ISA are as follows:
Junior ISAs are available for UK resident children under the age of 18 who do not have a CTF account. Junior ISAs are tax advantaged and have many features in common with ISAs. They can be cash or stocks and shares based products. The annual subscription limit for Junior ISA and CTF accounts remains at £9,000 for 2024/25. When a child turns 18, the Junior ISA automatically converts into an adult ISA.
A transfer of savings from a CTF to a Junior ISA is permitted at the request of the registered contact for the CTF.
The CTF scheme closed in 2011. CTF accounts started to mature in September 2020 when the first qualifying children reached 18. Without regulatory change the investments would lose their tax advantaged status. CTF and ISA regulations have therefore been made which:
If you live in the East Sussex area please contact us at Swindells if you would like any further information on Individual Savings Accounts.
