Getting the best out of ISAs should become easier for UK savers
Every tax year savers can put money into one of each kind of ISA. They can save up to £20,000 in one type of account or split the allowance across some or all of the other types.
But from next April, savers will enjoy much more freedom and choice. They will be able to sign up to multiple ISAs of the same type every year, provided the overall maximum ISA allowance isn’t breached.
Partial transfers between different providers will also be allowed.
This could allow investors who might otherwise have been priced out of certain shares to hold these fractional investments in an ISA.
With investing comes risk
The “most popular account” is the long-standing Stocks and Shares ISA, according to Hargreaves Lansdowne.
With a Stocks and Shares ISA, savers are given plenty of choice and flexibility. It’s up to them where you invest – they can choose from ready-made options, or create their own ISA portfolio by picking from funds, shares and more.
Experts at Chip said: “The longer you invest, the less likely you are to lose money, but there are no guarantees”.
They have put together a guide to help know if a Stocks and Shares ISA is the right thing for an individual.
Unlike the security offered by cash, investments fall as well as rise in value, so people could get back less than they put in.
Investing into stocks and shares could boost income
What are the pros?
The most attractive feature of a Stocks & Shares ISA, is that people can invest up to £20,000 with any returns you make tax-free.
It’s ‘tax-efficient’ which means people won’t pay capital gains tax if their money grows or dividend tax on any money they might earn from payouts to shareholders. This only applies to money they invest via their Stocks & Shares ISA.
Although it’s generally encouraged that people leave their money in a Stocks and Shares ISA for a period of five years or more, people are able to withdraw money whenever they like, should they need to.
Although there are no guarantees, generally the returns they’ll make from investing will be greater than the equivalent of just saving in cash when viewed over the long-term.
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But if you have a diverse range of investments, it’s more likely that you could make a return on some, if not all of your assets over time.
Are there any cons?
Previously, a major drawback would be the fact that people can only open one Stocks & Shares ISA per tax year. However, since the Autumn Statement, savers now have the flexibility to pay into the same type of ISA with different providers.
The biggest con is that the ISA limit is capped at £20,000, per tax year, which could dissuade those lucky enough to have larger amounts to invest.
Despite some calls for an increase in annual allowances, the government’s chosen to freeze these limits for the next tax year.
These are an “obvious port of call” for those seeking to shelter their savings from tax.
The downside of this approach has always been that people usually have to accept a slightly lower interest rate than on a standard savings account, but for many the implications of not sheltering their interest from tax probably now far outweigh the haircut they take on the headline return.
How can I open one?
Savers can open a Stocks and Shares ISA online with a range of providers relatively easily. They will just need a way to fund the account and their National Insurance number.
There are two types of Stocks and Shares ISA too, a self-select ISA where people can pick the type of investments they make, or a managed ISA where an investment manager will do this for them and help people maximise returns.
Many providers will also offer the option of choosing the level of risk for their investments, so people can decide which option is right for them.
When investing with a Stocks and Shares ISA, Britons are encouraged to always make sure they have their own investment goals to work towards, whether that’s saving for a property, retirement, or another milestone. This will help people decide what their current risk appetite is.
It should be noted that with investing comes risk, people may get back less than what they put in.
For more information on ISAs, savers are encouraged to speak to a financial advisor.