Everything you need to know about ISAs (in 2019-2020)

ISA stands for Individual Savings Account and the basic idea behind them has remained largely the same since they were introduced.  Essentially, they’re a tax-efficient way of saving and/or investing.  For adults, there are currently five types of ISAs.  These are: Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs, Help to Buy ISAs, and Lifetime ISAs.  For children, there is also the Junior ISA.  Here is a brief guide to what you need to know about them. The overall limit for ISAs is £20,000 For the tax year 2019/2020, the maximum ISA allocation is £20,000.  You can put all of this into one, specific ISA or spread it across a number of them, as long as you keep within the overall limits.  Certain types of ISA have their own, further, limits.

Cash ISAs Cash ISAs are basically tax-free savings accounts.  They may or may not be instant-access, this depends on the provider’s terms and conditions.  It is now possible to withdraw money from a cash ISA and then replace it within the same tax year.  You cannot, however, roll over unused portions of your ISA allowance.

Stocks and Shares ISAs Keeping investments within a Stocks and Shares ISA protects them from capital gains tax, dividend income tax and tax on the interest income from bonds.  It does, however, have to be noted that stocks and shares ISAs can be subject to transaction charges levied by the hosting platform.  Having said that, so can regular trading accounts.

Innovative Finance ISAs The term “Innovative Finance ISA” covers a lot of possibilities.  Possibly the most obvious is peer-to-peer lending, but there is also crowdfunding and some forms of business and property lending.  There is, however, a quick note of caution to sound and that is that you should really check whether or not a particular option is supported by your ISA provider before you get too carried away with the idea of investing in it.  Another point to remember about peer-to-peer lending, or any form of direct lending, is that your money is not protected the way it would be in a standard bank.  Basically, Innovative Finance ISAs are an alternative way to invest rather than a way to save.

Help-to-Buy ISAs The clock is ticking on Help-to-Buy ISAs.  Launched in December 2015, they were billed as a way to save for your first home.  People who qualified as first-time buyers could open an account with a maximum deposit of £1,200 and thereafter they can save up to £200 per month.  When the account holder buys a home, the government adds a 25% bonus onto the amount saved, up to a maximum of £3,000.  The Help to Buy ISA ran into something of a media firestorm when it emerged that the funds could only be accessed upon completion of a sale.  Hence buyers were not able to use them towards the holding deposit on a property.  This may have been the reason why the government decided to end the scheme.  It will close on 1st December 2019.  In other words, the last day to open one is 30th November 2019. NB: Help-to-Buy ISAs are basically a niche form of cash ISAs so you may struggle to open both in the same year.  If you wish to hold both, then the easiest approach might be to hold them with the same provider and essentially split your allowance between the two.

Lifetime ISAs With a Lifetime ISA, you can save up to £4000 per year onto which the government will add a monthly bonus of 25% up to a maximum of £1000 per year.  You can open one as soon as you turn 18 and you cease to be eligible for one as soon as you turn 40.  The bonus will continue to be paid until you turn 50 so, in theory, the maximum bonus is £33,000 (or £32,000 if your birthday falls on the 6th of April of any year).  Although you can withdraw money from a LISA for any purpose, you can only benefit from the bonus if you use the money towards the purchase of your first house or for retirement. For investments, we act as introducers only.