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Neil Ridpath, Independent Financial Advisor, shares his knowledge about Individual Savings Account

Tax-Efficient Ways of Building Up Assets for You and your Family

Guest Blog - Building a Secure Future with ISA’s

This guest blog is brought to you by Neil Ridpath, an Independent Financial Advisor with Neil J Ridpath Wealth Management Limited. A fundamental part of planning for yours and your family’s financial security is making the most of your assets. Here, Neil tells us about Individual Savings Accounts, and why they are such a useful tool for getting the best return form your hard-earned savings.

What is an ISA?

An Individual Savings Account (ISA) is a tax-efficient wrapper for cash and investments. The interest you earn on ISA’s is exempt from both income tax and capital gain tax, and no tax has to be paid on money withdrawn from an ISA either.

ISAs were introduced in 1999 to replace Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs) as a new way for savers to invest their money in a tax-efficient way.

There are two kinds of ISA's: a Stocks & Shares ISA’s, which hold investment funds and/or shares, and a Cash ISA’s, which are available as instant access or fixed-rate savings accounts.

 

Are you eligible for an ISA?

You are eligible to invest in an ISA if:

You are a U K resident,

You are an individual,

You are a Crown Servant living overseas,

You are aged 16 or over (for a cash ISA) or 18 or over (for a Stocks and Shares ISA).

 

What CAN’T you do?

If you move abroad, you cannot invest in new ISA’s as long as you live outside the UK, but you can continue to hold, and receive tax relief on, your existing ISAs. If you do move abroad, you must inform your ISA manager.

You cannot hold an ISA jointly – so couples can’t have a “joint account” ISA. Most commonly, couples will split the money to be invested and each hold an account in their own name.

Neither can you hold an ISA on behalf of someone else. But, the exception is that you can open a Junior ISA for your child (as long as you are their parent or guardian). The money in a Junior ISA belongs to your child but they cannot access it until they turn 18.  

 

How much can you invest in an ISA?

There is a maximum amount that can be invested in an ISA each year. This is the ISA Allowance. For the 2015/2016 tax year the ISA Allowance is £15,240. The ISA Allowance increases each year according to the Consumer Prices Index. This means that anyone can invest up to £15,240 in an ISA in 2015/2015 and still qualify for the tax exemptions.

The allowance cannot be rolled over into the next year. So, if you are investing in an ISA for the first time, and have, for example, £20,000 to invest, you can only put £15,240 into an ISA. You could not use any of your unused allowance from the 2014/2015 tax year.  You would have to wait until the next tax year to invest the rest. It is important to bear in mind that, if you haven’t used your full ISA allowance for the year before 5th April, you will lose it.

 

How can you invest?

You can invest in cash or stocks and shares in any combination, up to the annual allowance, by regular monthly or annual contributions or as a lump sum contribution.

Investors can only open one of each type of ISA (Cash and Stocks & Shares) in the same tax year.

Any ISA can be transferred to another ISA. You can also switch between funds or shares within a Stocks & Shares ISA without incurring Capital Gains Tax.

You do have to declare your income and gains from your ISA’s in your annual Tax return.

If you are over the age of 65, your income from investments in an ISA does not impact your higher rate personal tax allowance.

 

If you would like more information or advice from Neil about investing in ISA’s to maximise the tax efficiency of your savings, he can be reached by phone on 07592085448, by email at neil.ridpath@sjpp.co.uk or through his website www.neiljridpath.co.uk.

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