Tax Efficient Investments  

Isas still a popular saving tool

This article is part of
Guide to year-end tax planning

Those who had already opened a Help-to-Buy Isa (or opened one before 30 November 2019), are able to continue saving into their accounts until November 2029.

One of the main advantages of Isas is the flexibility they offer, as Mr Wynn of Fidelity points out: “Investors can also choose to spread the annual allowance across different types of Isa, meaning they can pick one that best suits their financial goals and circumstances – for example by selecting a Jisa to tax-efficiently save on behalf of children and grandchildren.”

There are some notable differences between Isas, however.

Cash and stocks and shares/investment Isas do what their names imply, allowing savers from age 16 to save their cash or from the age of 18 to invest in stocks and shares.

However, Lisas, introduced in 2017, have a specific age range, in that they are for 18 to 39-year-olds and are aimed at people looking to save to buy a property or to fund their retirement.

Up to £4,000 a year can be invested in this Isa, tax-free, either in cash, or in stocks and shares.

Also, savers receive a 25 per cent bonus on contributions, up to a maximum of £1,000 a year, from the government.

Access has its limitations though, as there is a charge of 25 per cent for withdrawals in the first 12 months, unless the account owner is buying a house, is aged 60 or is terminally ill.

IF Isas are another recent addition to the Isa family. Available to the over 18s, these enable investors to lend money to people and businesses through peer-to-peer lending platforms.

IF Isas tend to attract higher rates of interest, but the risk profile is higher too and they are not protected by the Financial Services Compensation Scheme.

As for Jisas, the current savings limit is £4,368 and they are available in cash and stocks and shares versions for children who do not already have a child trust fund.  

Only parents and guardians can open and manage the account, but the money legally belongs to the child, who can take control of the account when they reach 16 and then withdraw the money at 18.

This should be noted by parents who may open the account with a view to saving towards something sensible, such as the deposit on a property or university costs.

Children, however, may have very different ideas about what it should be spent on and as it is their money, disputes could arise. 

What next for Isas?

>Over the years Isas have evolved to become the first port of call for the vast majority of savers.--Andrew Tully