There are many types of ISAs, Cash ISA, Stocks and Shares ISA, Junior ISA, Innovative Finance ISA and Lifetime ISA. Having entered a new tax year there is a new ISA allowance available, possibly not your top priority with the current world events!
Financial discipline still exists and when clients ask if an ISA is worth it the answer is usually YES for a variety of reasons. Just because the equity markets have fallen since the start of the year don’t change your investment strategy, by this I mean don’t take more risk than you might normally consider.
The ISA allows an investor to put away £20,000 each year and these assets are then free of Income Tax and Capital Gains Tax.
As we mentioned there are various ISAs; Cash, Stocks & Shares, Junior, Innovative Finance and Lifetime ISA. The majority of people will use either a Cash ISA or a Stocks & Shares ISA. With a Stocks & Shares ISA, this will mean leaving the money invested for at least 5 years, although that doesn’t mean you can’t access the money if needed. When selecting an ISA always check the terms for accessing your money, and whether there’s a penalty or charge.
A Stocks & Shares ISA should only really cost around 1% – 1½% per annum, and potentially much less if you use a passive investment fund. The investment choice is extensive, from Corporate Bonds to Emerging Markets but I would take a balanced approach to any long term investment, don’t try and pick the “next big thing”.
The value of investments can fall as well as rise. You may not get back what you invest.
If the uncertainty of the stock markets is not for you then a Cash ISA allows you to use the ISA allowance.
If you have no cash available but have investments outside of an ISA then consider using the Bed & ISA facility to move the asset into an ISA wrapper. Watch for Capital Gains (CGT) on this transaction as it is a sale for CGT and then repurchase within the ISA.
Don’t forget Junior ISAs for those under 18, the 2020 Budget significantly increased the allowance from £4,368 to £9,000 per tax year from 6 April 2020. The Child Trust Fund (CTF) has the same subscription limits. A child holding a CTF isn’t eligible to open a Junior ISA (JISA) unless they first transfer their CTF funds to a JISA and close the CTF.