In his Autumn Statement, Jeremy Hunt announced changes to ISA rules.
From April 2024, it will be possible to pay into ISAs of the same type (excluding Lifetime ISAs), within the same tax year. This is a change from the 2023/24 rules that limit subscriptions to one ISA type in a tax year.
Labour, meanwhile, has announced it would look to simplify the ISA landscape (alongside other retirement reforms) if elected.
ISAs are an incredibly tax-efficient savings and investment vehicle, but you’ll need to understand how they fit into your individual plan.
Keep reading for a closer look at the different ISA types you might choose.
A Stocks and Shares ISA can help you invest toward a long-term goal
A Stocks and Shares ISA is a tax-efficient way to invest your money. The gains you make are free of Income Tax and Capital Gains Tax (CGT), but like any investment, it should be a long-term proposition.
Investment carries risk but a goal that is 10 years away will allow plenty of time for your funds to ride out periods of short-term volatility.
You’ll need to understand your attitude to risk and your capacity for loss. This will allow you to match your asset allocation to your risk profile and give you the best chance of staying on track.
To open a Stocks and Shares ISA you must be resident in the UK and over the age of 18.
The ISA subscription for 2023/24 is £20,000 so if you haven’t used your full allowance be sure to do so before tax year end. There is no option to carry forward unused allowance so if you don’t use it, you lose it.
A Cash ISA is lower risk but returns could be lower
Cash ISAs are incredibly tax-efficient and they also carry less risk than a Stocks and Shares ISA.
There’s no tax to pay on interest and your money is also protected under the Financial Services Compensation Scheme (FSCS).
From April, you’ll need to be 18 to open a Cash ISA (up from 16 during the 2023/24 tax year).
The return you receive will be dependent on the interest rate but you might find you receive less than you would via an investment. It’s also worth noting that during periods of high inflation, your money could be effectively losing value in real terms.
You might consider a Cash ISA if you have a large amount of savings or you’re an additional-rate taxpayer. Current high interest rates are great news for savers but could mean you exceed the Personal Savings Allowance (PSA). Unlike savings accounts, though, Cash ISAs are not subject to the PSA.
Because your fund is easily accessible, a Cash ISA might also form part of your emergency fund.
Innovative Finance ISAs aren’t for the risk-averse but could provide a unique opportunity
Innovative Finance ISAs match experienced investors to individuals, businesses, or property developers who are looking to borrow funds. The ISA holder then provides a peer-to-peer loan (a loan to an individual or business without using a bank).
As the ISA holder, you will be offered a rate of interest by your borrower when paying back your investment amount. The rate will likely reflect the risk attached to the investment.
You need to be over the age of 18 and a UK resident to open one, and you’ll need to be very sure of your capacity for loss.
Not only could you lose your invested amount, but peer-to-peer lending falls outside of the FSCS.
The ISA Allowance remains at £20,000 for the 2024/25 tax year so consider getting in early
As we have already seen, if you don’t use your full ISA Allowance by the end of the tax year you lose it. This means there is often a rush to make final ISA subscriptions in February and March, ahead of tax year end.
While it’s important to make full use of your ISA tax efficiencies, you might also consider the benefits of maxing out your allowance early in 2024/25, if you can afford to.
This gives you an extra 12 months of investment returns, which can add up throughout a long-term investment.
Get in touch
If you’d like help finding the ISA that matches your financial plans, get in touch. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
