Individual Savings Accounts (ISAs)
ISAs allow you to save money tax-free, however the amount of money you can save into ISAs is currently limited to £20,000 per annum. Cash ISAs receive interest and the returns from investment based stocks and shares ISAs vary depending on the funds you are invested in.
New for 2017 is the introduction of the Lifetime ISA's, for anyone aged under 40. You can save up to £4,000 of your £20,000 annual ISA allowance, and receive basic rate tax relief on any amount invested. As long as the account is open before age 40, you can carry on and contribute to a Lifetime ISA until age 60 and continue to receive basic rate tax relief. However, you can only access your Lifetime ISA to either help fund a property purchase or after age 60. Access for any other reason before age 60 will result in the loss of the tax relief you have received.
Junior ISAs are available for children aged under 18, who do not have a Child Trust Fund. Anyone can pay into a Junior ISA on behalf of the child, currently up to £4,128 per annum. Although Junior ISAs are held in the name of the child, they cannot be accessed until the child reaches the age of 18.
General Investment Accounts (GIAs)
GIAs allow you to invest in Unit Trusts and Open Ended Investment Companies (OEICs), however unlike ISAs, investing through a GIA does not provide tax-free returns.
The income, usually by way of dividends, may be subject to income tax regardless of whether you receive the income or it is reinvested to purchase more units, known as ‘accumulation’. When you ultimately sell the fund, any investment gain may be subject to capital gains tax.
There are however various tax allowances. Currently, the first £5,000 of dividend income per annum, (however this is being reduced to £2,000 per annum from 6 April 2018) and the first £11,300 of capital gain per annum is tax-free. This may mean that income and capital growth from investing within a GIA is also tax-free, if properly managed.
Investment bonds are a single premium lump sum investment into a non-qualifying life insurance policy, typically used for investing. Investment bonds are also a non-income producing investment, therefore are useful for clients trying to control their level of income for tax planning reasons.