THE START of the new tax year means fresh ISA allowances and many people are mulling over their options for the 2018/19 tax year. The ISA investment limit is still at a generous £20,000, having risen 31.2 per cent from the £15,240 limit seen in 2015/16 and 2016/17.
Where to save and invest your ISA allowance
There are several tax-efficient options available for you to invest your annual £20,000 limit. Typically, cash ISAs and stocks and shares ISAs have been the most popular tax-efficient avenue for savers.
Historically, cash ISAs were one of the most popular choice as they are essentially simple savings accounts except returns aren’t subject to income tax.
You can only pay into one cash ISA per tax year.
What’s the difference between a Help to Buy ISA and a Lifetime ISA?
The Help to Buy ISA has been available since 1 December 2015 and is designed for anyone aged 16 or over who is actively saving up a deposit to buy their first home. Whatever you save, the government will add 25 per cent on top of this figure when you come to purchase a house of up to £250,000 (or £450,000 in London).
The Lifetime ISA launched on 6 April 2017. The purpose of this ISA is to help anyone aged between 18 and 39 save a deposit for their first home or retirement. The government, again, add an annual 25 per cent bonus of what you have accumulated in the account. It can be used for retirement or for a first property of up to £450,000.
Below is round-up of each ISA’s key features:
Stocks and Shares ISA
Whilst both cash ISAs and stocks and shares ISAs are tax efficient ways to make the most of your money, stocks and shares ISAs differ. Cash ISAs are described as simple savings accounts whereas stocks and shares ISAs are investments, which is an attractive alternative for some.
2017 saw investments into stocks and shares ISAs overtake savings deposited into cash ISAs. With the potential for higher returns and no capital gains tax, it is not surprising that many are using their ISA allowance against investments such as property, corporate bonds, cash, government, or stocks and shares.
You can only pay into one stocks and shares ISA per tax year.
Wellesley Property Bond
Wellesley’s ISA-eligible Bond allows you to earn tax-free interest on your investment. The three-year bond offers fixed returns of 5.5 per cent per annum (paid monthly) and the knowledge that your investment is secured against property within a bond that is listed on the Irish Stock Exchange.
Funds subscribed to the Property Bond are used to acquire loans made by Wellesley which are secured against assets consisting mainly of UK residential property.
The Wellesley Property Bond is available to anybody over the age of 18, or a trust, business or charity that are residents of the UK.
Should I open an ISA?
Every UK citizen over the age of 16 has an ISA allowance of £20,000 for the 2018/19 tax year. The primary benefit of depositing your money into an ISA of any sort is the ability to build interest more readily than other forms of savings and investments currently available.
It is a case of use it or lose it when it comes to your ISA allowance for the tax year and you have until 5 April 2019 to take full advantage of ISAs on offer. Make sure you don’t miss out on the tax-free savings you are entitled to.