ISA returns of the year

Time to explore your ISA options?

An Individual Savings Account (ISA) enables you to save in a simple, tax-efficient way, while generally giving you instant access to your money.

This gives you short, medium and long-term saving options, and with the end of the current tax year not too far away, it’s important to make the most of your annual tax-free ISA allowance.

UK residents 16 or over can save up to £20,000 a year (for the 2019/20 tax year) into a Cash ISA. Those aged 18 or over can save in a Cash or Stocks & Shares ISA, or combination of ISAs.

Tax-efficient wrapper

ISAs are a very tax-efficient wrapper in which you can buy, hold and sell investments. For any ISA contributions to count for the current the tax year, you must save or invest by 5 April.

Also, don’t forget that any unused ISA allowance can’t be rolled over into a subsequent tax year, so if you don’t use it, you’ve lost it forever. Even though you’ll receive a new allowance for the next tax year, you are not permitted to contribute anything towards a previous ISA.

Types of ISA options

Cash ISA – these are savings accounts that are tax-free, with the maximum allowable contribution set at £20,000 in the current tax year

Junior ISA – these are tax-free savings accounts which under-18s can save or invest maximum contributions up to £4,368 in the current tax year

Stocks & shares ISA – these are investments that are classed as tax-efficient, with the maximum allowable contribution set at £20,000 in the current tax year

Innovative Finance ISA – these are peer-to-peer lending investments that are classed as tax-efficient, with the maximum allowable contribution set at £20,000 in the current tax year

Lifetime ISAs – these can be either classed as savings (tax-free) or investments (tax-efficient). You must be aged between 18 to 39, and the maximum allowable contribution is set at £4,000 in the current tax year

Help to Buy: ISAs set up to help out those saving for their first home were only available to new savers until 30 November 2019. Existing savers can continue saving, although they must claim their government bonus by 1 December 2030.

Key elements

Goals, time horizon, risk and diversification are key elements to consider when saving and investing. You could put all the £20,000 into a Cash ISA, invest it in a Stocks & Shares ISA, or in an Innovative Finance ISA. Alternatively, you could split your allowance between Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs or Innovative Finance ISAs, depending on your specific situation and requirements.

If you are not sure what to invest in, you could temporarily hold your annual ISA allowance in cash in the short term and invest thereafter. However, cash is not good for the long term because inflation has the potential to erode its value.

Transfer investments

If you don’t have £20,000 in new money to invest, you could transfer investments outside a tax-efficient wrapper into an ISA.

ISAs can also be passed on death to a surviving spouse or registered civil partner. The surviving spouse is entitled to an additional, one-off ISA allowance, equal to the value of the deceased’s ISA holdings. This enables the surviving spouse to effectively re-shelter assets which were in a spouse’s ISA into an ISA in their name.

Want to get the most from your ISA allowance?

ISAs enable savers and investors to build up the sums they need to meet financial goals, whether to supplement a retirement pot or a deposit for a home. However, if you don’t know how ISAs work and how to use them to manage your wealth, you won’t be able to take full advantage of their benefits. To find out more, or to discuss your options before the end of the current tax year, please contact Touchstone Investment Advisers on 0203 026 4074 or email info@touchstone-uk.co.uk.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE TAX BENEFITS RELATING TO ISA INVESTMENTS MAY NOT BE MAINTAINED.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.