ISA’s are tax efficient savings vehicles which are free of income tax and capital gains tax (CGT). This means that all growth within an ISA and any income taken from one will be completely tax free. This can be beneficial for building up a pot of savings for use in the future, at which point income can be taken from the ISA completely tax free regardless of your income.

There are two main types of ISA:

Cash ISA

Cash ISA’s are offered by most banks and building societies and offer an excellent low risk option for those who may need access to their funds at short notice. Whilst Cash ISA’s protect your capital from the day to day ups and down of the market, in the long run they are unlikely to produce a “real return” above inflation.

Stocks and Shares ISA (S&S)

Stocks and Shares ISA’s offer the same attractive tax free advantages as a cash ISA, however your capital will be invested in a range of investment funds rather than remaining in cash. Investment into a Stocks and Shares ISA should be viewed as a long term investment, usually for at least five years. This allows for the day to day fluctuations of the markets. Whilst the potential for real returns will be higher than that available via a cash ISA over the long term, there will always be risk to your original investment and the value of your ISA will go up and down. 

The portfolio in which your ISA funds will be invested in can be tailored to suit your own attitude to investment risk and also gives you the flexibility to change your investments as your needs and circumstances change.

ISA Contribution Limits

All UK residents over the age of 18 have an annual ISA allowance of £20,000.00 each tax year. Any unused ISA allowance cannot be carried forward. 

You have the option of investing the full £20,000 into a cash ISA, a stocks and shares ISA or a combination of the two. However you can only invest in one of each type of ISA per tax year. (For those aged 16 or 17, you may only invest in a cash ISA.)

ISA Withdrawals

Withdrawals from an ISA can be made at any time, however once withdrawn, the capital will lose its tax free status and can only be paid back into an ISA provided there is unused ISA allowance available. (Flexible ISA’s allow money to be replaced within the same tax year without affecting the ISA allowance.) 

Transfers between ISA’s retain their tax free status throughout. This means that you can transfer money between ISA’s (either cash or stocks and shares) without impacting your annual ISA allowance.

If you would like to learn more about this subject or require Independent Financial Advice from our local, experienced and friendly team, please feel free to contact us on 01788 57 11 22.

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor. 

PJL Financial Services Limited are authorised and regulated by the Financial Conduct Authority. 

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