The ISA (Individual Savings Account) is a popular way to save and invest money tax efficiently. Recent years have seen the amount you can save rise rapidly – a further increase is due in April 2017 – but what is an ISA and is it the right choice for you?
How does the ISA limit work?
The current maximum amount you can save is £15,240 – in 2017/18 the ISA investment limit will rise to £20,000, with the Junior ISA (JISA) and Child Trust Fund limits increasing to £4,128. Under existing rules, you can either split the money between a cash ISA or a stocks and shares ISA, or put the full amount into a mixture of both.
What’s the difference between a cash ISA and a stocks and shares ISA?
Put simply, a cash ISA is simply a tax-free savings account that accrues interest paid by your cash ISA provider. A stocks and shares ISA lets you invest in shares, bonds and investment funds – your money (unlike a cash ISA) has the potential to be affected adversely by stock market volatility, but also has the potential to yield a higher return.
Will I pay tax on dividends paid within a stocks and shares ISA?
At the time of writing, investors receive a £5,000 tax-free allowance. After that, dividend tax rates start at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and finally 38.1% for those who pay the additional rate of tax. This can be a complex area and it could be prudent to seek professional advice on this matter.
What happens if I exceed my annual ISA limit?
As it is possible to hold a cash ISA with one provider and a stock and shares ISA with another, there is always the risk that you could pay in too much during a tax year. It is your responsibility to keep track of BOTH types of ISA. HMRC is notified when a deposit is made and tax records for individuals are checked and oversubscriptions recorded. Any anomalies will be assessed and advised by HRMC themselves.
If you want to find out more about ISA’s or any other area of investments, CHN would be delighted to hear from you. Call us on 0113 3878240 or use the quick contact formto arrange an initial NO OBLIGATION review.
Stocks and shares ISA’s are investments therefore the money invested may go down as well as up and you may not get back the original capital invested.