10 things you didn’t know about ISAs
06/05/2015
06/05/2015
It’s no secret that putting your money into an Individual Savings Account (ISA) is one of the most tax-efficient ways you can save. Around 13.5 million adult ISA accounts were subscribed to in 2013-2014 (www.gov.uk 2015). Despite their popularity, there are still some conditions and rules that are not widely known.
ISA season has been created by banks and buildings societies to encourage savers to take out new ISAs in a new tax year. The benefit is that the sooner you open your ISA, the sooner you could be earning interest on your savings or investment. Similarly, the run up to the end of the tax year is full of reminders to take advantage of any unused annual ISA allowance.
Interest is typically accrued daily but paid monthly or annually. So if you’re lucky enough to have a bit of money to spare, you’re better off putting it into your ISAs as soon as you can, rather than waiting until the end of the tax year. This is another reason why ISA season is so popular.
Annual allowances have now been linked to Consumer Price Index (CPI), which is used in the calculation of inflation. From this figure, keen savers will be able to work out the increase in annual ISA allowance in the future.
Historically savers have only been able to transfer funds from a cash ISA to a stocks & shares ISA, not the other way around. Recent changes to the rules mean that you now have the option to move your money from stocks and shares back into a cash ISA again. You now have the freedom to use your ISA as you wish, giving you greater control over your savings.
Within last year’s Autumn Statement, the Chancellor announced that husbands and wives will be able to pass on their ISAs tax free when they die. The funds can be transferred to the surviving spouse or civil partner upon death.
Any money inherited in this way will be in addition to any ISA allowance the surviving partner has. This will be equal to the value of the deceased partner’s ISA savings, at the time of their death. The allowance can be used by holding funds in the deceased partner’s account or by opening a new ISA, either in cash or stocks & shares. However, there is a time limit on when the additional allowance can be used.
The inherited ISA will be free from inheritance tax because the transfer is between spouses (or registered civil partners). However, when the recipient of the ISA dies and passes their estate on to their beneficiaries, the ISA would then be liable to inheritance tax.
The conditions attached to your stocks and shares ISA will vary according to your provider and the specific type of account you have. Although these conditions may have been acceptable when you first took out the account, you may need to rethink your investment options if your circumstances and plans have changed, or are likely to change in the future. It’s best to speak to an IFA if you have any concerns about this.
If you’ve exceeded your pension allowance, you can use your ISA allowance to top up your retirement fund. This is a tax efficient way of saving for your retirement, and gives you the added flexibility of having instant access to your money if you need it.
When it comes to choosing an ISA many people will go with a bank or building society. There are a wide range of ISAs available through the major banks. With the added convenience of being able to apply for some accounts online, high street banks or building societies may seem like the most obvious choice.
However, by not looking beyond the high street, you may be missing out on some of the best deals. Seeking advice independently can open up options that are not otherwise available, as Independent Financial Advisers have access to the whole financial market.
ISA consolidation means moving your funds into one place so you accrue interest on a higher amount of money. Simplifying your savings and investment portfolio in this way also means you’ll spend less time managing your money.
We recommend that you speak to an IFA before putting all your eggs in one basket. They will be able to explain any possible implications & benefits of consolidating your funds.
There’s no doubt that a stocks and shares ISA is a tax efficient way of investing, however investments have charges which can vary between providers. Many providers will charge a fee for you to open and hold a stocks & shares ISA. Some may even charge if you want to change your investments, withdraw money or move to another company. Your IFA will be able to help you understand the charges associated with an investment and if there are discounts through consolidation.
For more information on ISAs or to discuss your financial plan, call our experienced team of Independent Financial Advisers on 01823 250750.