Everything You Need To Know About ISAs

Everything You Need To Know About ISAs

Everyone wants to make their money go further, whether that’s as a result of better budgeting or from investing, although the latter can seem pretty daunting, especially if it’s new territory. In fact, government statistics show that over half of all women in the UK have never held an investment, compared to 37% of men. So, are women doing themselves a disservice when it comes to the investment gap?

We’ve teamed up with Investec Click & Invest, the online investment experts, to make investing accessible and decode one of the simplest ways to get started: ISAs. From what an ISA actually is to who’s eligible for one and how much you should be investing, here are all your questions answered…

1. First of all, what exactly is an ISA and why would you need to open one?

There are several types of ISA that all have slightly different purposes, but essentially they are all a way to save or invest your money and keep it protected from tax.

Anyone who’s interested in saving or investing should consider an ISA as a starting point. The main incentive is that ISAs have tax breaks. On other types of savings or investment accounts you may have to pay tax on the interest you earn, or other money you make through investing, but with an ISA you get to keep more of your money as it grows.

2. And can anyone open an ISA?

All UK residents. Some ISAs have specific age limits – for example, cash ISAs are only available to people over the age of 16, and stocks and shares ISAs are only available to people over 18.

3. OK so what are the different types of ISAs?

There are four main types:
Cash ISAs: Are the most well-known, and are essentially cash savings accounts with tax benefits.

Stocks & Shares ISAs: Allow you to invest in stocks and shares, bonds, property and other assets, giving you tax breaks on your investments.

Innovative Finance ISAs: Offer tax breaks on peer-to-peer lending.

Lifetime ISAs: Offer tax breaks and the additional benefit of a 25% government bonus on any money you contribute, up to a maximum of £1,000 each tax year.

4. How do you know which ISA to go for?

Different types of ISAs are suitable for different goals. For example, if you’re saving to buy a house, the 25% government bonus you get with a lifetime ISA is an extremely useful benefit – but before you open one, you’ll need to make sure you’re aware of all of the rules around withdrawing your money.

When it comes to choosing between a cash ISA and a stocks and shares ISA, the choice is really between whether saving or investing is more suitable for your goals. With saving, you generally get back the same amount as you put in (plus any interest and minus any charges). It’s best suited to short-term goals (to be cashed in within three years), as over long periods inflation can erode the value of your savings.

Investing carries a greater level of risk as you may lose some or all of the money you invest. However, it also provides the opportunity for higher returns over time – the value of investments often fluctuates in the short term, so investing is recommended for long-term goals (over three years).

It’s worth knowing you’re allowed to pay into both a cash ISA and stocks and shares ISA in the same tax year, so the best option for you might be to have both.

5. What are the benefits of a stocks and shares ISA?

Stocks and shares ISAs have the potential for higher returns over the long term than cash ISAs, if you’re willing to accept the possibility of making a loss in the short term. Your returns are protected from tax, so any money you earn in capital gains or regular income is yours to keep.

Your returns are protected from tax, so any money you earn in capital gains or regular income is yours to keep

6. Are stocks and shares ISAs suitable for someone new to investing?

You don’t need to be an experienced investor to reap the benefits of a stocks and shares ISA. While investing can be extremely complex, requiring a lot of time and skill, it doesn’t have to be. Click & Invest aim to make it as easy and transparent as possible, so you won’t find inscrutable investment language or complicated fees.

7. Is there a cap on how much you can invest?

If you choose to invest through a stocks and shares ISA, you’ll need to be aware of the ISA allowance – AKA, the amount of money you’re entitled to pay into your ISA to take advantage of the tax breaks. For this tax year (2018/2019), the ISA allowance is £20,000. So this is the maximum you could invest in a stocks and shares ISA.

The allowance is per person, not per ISA. If you have more than one ISA, for example a cash ISA and a stocks and shares ISA, you can pay into both in the same tax year as long as your total contributions don’t exceed the allowance. So if you were to put £5,000 in a cash ISA, you’d be able to invest £15,000 in a stocks and shares ISA.

You don’t need to be an experienced investor to reap the benefits of a stocks and shares ISA

8. Do you pay tax on what your ISA makes?

The key benefit of a stocks and shares ISA is the tax breaks on returns. Investments can generate returns in three ways: in capital gains (returns generated by buying and selling stocks and shares), interest (on corporate or government bonds, for example) and dividends (if you receive a portion of the profits of a company you own shares in).

In an investment account, you might have to pay capital gains tax, income tax or dividends tax on these returns. But if those investments are held in a stocks and shares ISA, you get to keep all of the returns to yourself.

9. Can you transfer an existing ISA?

It’s easy to transfer an existing ISA. At Click & Invest you can transfer existing cash or stocks and shares ISAs just by completing one simple form. Transferring ISAs from previous years will not count towards your ISA allowance for this year, and could be a good way to keep track of all your ISAs in one place.

10. What are the benefits of a Click & Invest ISA?

Click & Invest, believe in active investment strategies. This means that their investment managers carefully select investment opportunities which they believe will beat the market, not just track it.
This is different from passive investment strategies, where managers simply aim to track the market, usually by investing in exchange-traded funds or ETFs.

Click & Invest build globally diversified investment portfolios by assessing and selecting only the best investments from tens of thousands available to us and spend the time reviewing investment opportunities for your hard-earned money, so you don’t have to.

11. How do you get started?

Opening a Click & Invest stocks and shares ISA is straightforward, convenient and takes less than 20 minutes. They will ask you some initial questions and create your investment portfolio in line with your attitude to risk. You can then transfer in your existing ISAs, or make an initial investment of £2,500 or more. You have until 5th April to use your annual ISA allowance of £20,000.
If you need any help with the process, Click & Invest’s dedicated team of specialists are on hand to support you 24/7. To start, simply go to clickandinvest.com

Remember that with any investment your capital is at risk so you could get back less than you invested. The tax advantages of ISAs may change in the future and depend on your individual circumstances. This article is not intended to constitute personal advice and no action should be taken, or not taken, on account of information provided.

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