Individual Savings Accounts, or ISAs, are a tax-efficient investment. Any growth earned with your ISA is protected from income and Capital Gains tax. You may have noticed that ISAs have been in the news a lot recently. In this article we’ll discuss proposed changes to ISAs and explain the government’s current position.
ISAs: An Overview
There are a number of types of ISA, including Cash ISAs and Stocks and Shares ISAs. Cash ISAs are savings products with Stocks and Shares ISAs being an investment product. You must be 18 and resident in the UK. This tax year there is an annual allowance of £20,000 that may be invested or saved in ISAs. This is the overall allowance, no matter how many ISAs you are paying into. You are able to have multiple ISAs concurrently; different ISA portfolios can be aligned to different savings goals. At the start of a new financial year, you can continue paying into the same ISA as the previous tax year. As noted previously, the interest on cash ISA savings and Stocks and Shares ISA growth* is tax-free.
Recent proposed changes to ISAs
Chancellor Rachel Reeves has been vocal about her intention to boost the UK economy by encouraging investments into UK companies. One proposed means to do this is by significantly lowering the allowance for cash ISAs. This could be set as low as £4,000, down from £20,000. The government hopes this would reduce the appeal of a cash ISA, instead boosting investments in Stock and Shares ISAs. A Treasury spokesperson has stated the intention to “ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy”.
Following backlash from various parties, this proposed change has been postponed for now. Some are concerned that instead of encouraging investment in Stocks and Shares ISAs, it would stop people saving at all. Alternatively, they may opt to save in regular savings accounts, forgoing the tax-free element. Banks and building societies often offer cash ISAs. They have shown concern that if less money is saved in cash ISAs, there will be less money available to lend for mortgages and loans. This in turn could lead to a higher cost of borrowing.
In her speech at Mansion House earlier in July, Reeves spoke of continuing “to consider further changes to ISAs, engaging widely over the coming months”. We will continue to monitor any further announcements regarding this, so watch this space.
Benefits of a Stocks and Shares ISA
Unlike other investment products, with an ISA wrapper, anything you earn from investing is not subject to income tax or capital gains tax. Not only do you keep more of your money, but compound interest – where growth is reinvested – means you could yield higher returns.
Stocks and Shares ISAs are a great option for those looking for a long-term investment, who don’t need to have instant access to their funds. It is possible to remove funds from your Stocks and Shares ISA. However, not withdrawing from it will give you the best opportunity to have your money grow and perform most effectively for you. Those with disposable income, and who have not used their full ISA allowance in the current tax year will benefit from this form of ISA. These ISAs do not carry the lowest risk in terms of investment and savings options. So, it’s important to understand the risks involved in investing in a Stocks and Shares ISA, and build your portfolio accordingly.
Working with Willday Wealth Management
Stocks and Shares ISAs can be a great introduction to investing. With Willday Wealth Management, you’ll have a team of experts on-hand, every step of the way.
We’ll work with you to choose your portfolio of investments, based on your goals and risk tolerance. Following this, we’ll build a personalised portfolio, putting your money to work in a tax-free, high performing manner to grow your wealth. Call our team on 0116 222 0119 to start the conversation.
* With investing, your capital is at risk and you may get less than what you invested. Tax treatment depends on your individual circumstances and may change in the future.
