InvestmentsApr 20 2016

Alternative Isas: a lifetime love affair?

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      CPD
      Approx.30min
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      CPD
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      Alternative Isas: a lifetime love affair?

      Since April 1999, when Personal Equity Plans became Individual Savings Accounts (Isas), it is fair to say the UK public has fallen in love with these investments.

      Indeed, a 2015 government report showed the total value in Isas (excluding Jisas) was nearly £500bn, which is more than the technology giant Apple is worth.

      With the recent Budget including the announcement of a new Lifetime Isa, it could be argued the Isa is also one of the favourite political tools in the Chancellor’s bag.

      There have been many changes to Isas over the years, and following announcements in the recent Budget, now seems a good time to take stock and review the main options available in the Isa family.

      The family tree

      The basics of the Isa framework have rarely changed since they were first introduced. Only slight tweaks have occurred, depending on what that particular Isa is trying to achieve.

      Although technical in detail, the clear tax-efficient structure and allowances are at the core

      This means the DNA of those initial Isas can be seen in each product. Arguably, it is the below cornerstones that have contributed the most to the Isa success story as they are clear, understandable and advantageous to a large proportion of the public:

      1. Tax-free returns

      Returns within the Isa framework are tax-free, giving Isas a sizeable advantage over other investment vehicles.

      2. Tax-free withdrawals

      Tax-free returns are one thing, but add in the ability to make tax-free withdrawals and Isas also have an added attraction.

      3. Annual investment allowance

      A clear investment limit is also in place. On the one hand, this is a potential disadvantage as there is a restriction. On the other, the limit creates transparency and reduces complexity.

      Although there may be slight tweaks to the above depending on the investment vehicle, the important point is all three factors are the starting point when a new Isa framework has been developed for the marketplace. With this in mind, let us introduce the Isa family.

      Isa – the founding father

      The original Isa framework has remained remarkably untouched since its introduction in April 1999. Although differences between stocks and shares and Maxi and Mini Isas have come and gone, the tax advantages have remained constant.

      There are currently two types of Isas (cash, and stocks and shares). The allowable investments have also become more flexible by allowing investment in Alternative Investment Market (Aim) shares and peer-to-peer lending, for instance.

      An individual has to be over 16 to open a cash Isa and 18 for a stocks and shares Isa, as well as being a UK resident or crown servant/civil service worker or spouse/civil partner if not UK resident.

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