Individual savings accounts (isa’s)

Individual savings accounts (isa’s)

Any individual, who is an Income Tax payer and has some money to save or invest, should know about Individual Savings Accounts (ISAs). ISAs offer an attractive tax-favoured shelter to anyone aged 18 or over (16 or over for cash ISAs). Junior ISAs are also available.

With standard bank and building society savings accounts, taxpayers normally have to pay tax on any interest earned on their money.  Basic Rate tax is deducted from the interest before it is paid out, reducing the amount received and Higher Rate taxpayers have a further liability to be deducted via their Self-Assessment.  Similarly, tax must be paid on the income and profits made from investments in the stock market like company shares or unit trusts. 

However, ISAs serve as a kind of ‘wrapper’ to protect savings from tax, allowing individuals to invest monies up to maximum annual limits (by way of regular or single amounts) each tax year in a range of savings and investments and pay no personal tax at all on the income and/or profits received.

The main ISA benefits are:

  • No personal tax (income or capital gains) on any investments in an ISA.
  • Income and gains from ISAs do not need to be included in tax returns.
  • Money can be withdrawn from an ISA at any time without losing the tax breaks. 

ISAs can be transferred between providers, without infringing on current years allowances and without losing the tax-efficient wrapper, so you do not have to keep your ISA with the provider through which it was created.

It is important to note that tax will impact upon the potential future performance of the portfolio.  Therefore, a tax-efficient portfolio will always outperform an inefficient portfolio even if they are invested in the same underlying funds.  This makes ISAs very attractive to investors.

To discuss this further, please contact us.