The Facts You Need To Know About ISAs
Published / Last Updated on 08/07/2019
As the tax year is coming to an end, please see below details on some important ISA facts that you should be aware of:
- ISA Investments are free of income tax and capital gains tax (CGT).
- There are 4 kinds of ISA, (we have ignored the Help to Buy ISA – support removed from 30 November 2019).
- Stocks and Shares
- Innovative Finance and Lifetime ISA the (LISA) which is subject to special investment conditions see below;
- The Junior (JISA) for parents/grandparents and others to invest in for a child. The subscription limit being £4,260 in 2018/19.
- £20,000 per tax year per individual can be spread across all 4 ISAs. Only one of each can be chosen in each tax year. Special limit contributions for the LISA detailed below
- If you do not use the £20,000 limit in one tax year the balance can not be carried forward. So, it is important to use the full amount in each tax year.
- ISA’s in general are open to people aged 18 and over and they need to be a UK tax resident (also see below). To open an ISA, you must be aged 16 or over, or 18 and over up to the age of 40 to open a LISA. You can not continue subscriptions after the age of 50 if you have opened a LISA.
To open an ISA, you must be a UK tax resident. If an individual loses their UK tax status, they can keep any existing ISAs but can not pay into them anymore or open any new ones. An individual who is a Crown servant (so in the armed forces or civil servant or a spouse/civil partner) are treated as UK tax residents so they can continue to pay into their ISAs.
JUNIOR ISAs (JISA)
- A JISA can be used for parents and grandparents to save for a child’s education costs and provide funds to help with a property purchase.
- Although legally the JISA is in the name of the adult that opened it, the child at age of 18 can withdraw monies.
LIFETIME ISA (LISA)
- A LISA is designed to help people save to buy their first home or boost their retirement funds at aged 60. Only £4,000 per year can be paid into a LISA. The government will add a bonus of 25% of the subscription (so if you invested the maximum £4,000 the new amount will be £5,000).
- If the LISA is encashed before the age of 60 (other than to make a first-time property purchase). The Government will take their 25% back.
- As the maximum age is 40 for LISA’s, it may be worth starting one in their late 30’s and adding funds into it in their 40’s. Parents may be able to help them with funds to start the plan.
- An ISAs value will form part of an individual’s estate on death for inheritance tax (IHT) purposes. Those who want to combine income tax and CGT benefits with IHT planning they could choose a stocks and shares ISA that invests in AIM securities and that quality for IHT business relief at 100%. Two years owning the ISA the value will not form part of the investor’s taxable estate for IHT purposes. Remember that more risk could exist with this investment than with an ISA that invests in FTSE shares or funds tacking shares.
ADDITIONAL ISA ALLOWANCE
- A married or person in a civil partnership who dies, the survivor inherits an additional ISA allowance (over and above their own £20,000 limit)
- The additional ISA allowance equals to the higher value of the deceased’s ISA at the date of death and the value when the survivor makes the additional ISA investment. The investment must be made before the earlier of the 3 years from the deceased death and the date when the administration of the deceased’s estate is complete.
- There is word that the Government are introducing a Care ISA where funds will be used to pay for an individual’s care costs. Any remaining funds will be free of IHT on death.
- We will have to wait to see whether this materialises in the future.