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Why Should You Invest In A Stocks & Shares ISA?

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During this tax year, everyone over the age of 16 and who is UK resident can put up to £15,240 into an ISA. This annual allowance will rise to a generous £20,000 in April 2017.

Stocks and shares ISAs have tax advantages that are worth considering, especially if you're a higher or additional-rate taxpayer. 

While the more common cash ISA usually offered by banks and building societies is simply a tax-free savings account based on current UK interest rates, a stocks and shares ISA is a tax-efficient investment account that lets you put money into range of different investments, including unit trusts, open-ended investment companies (OEICs) and investment trusts, as well as government bonds and corporate bonds.  It is also possible to buy quoted individual company shares (now including AIM stocks) and put them into your ISA.  So, unlike with cash ISAs, you should only invest if you are prepared to take the risk that your investments can go down, as well as up, in value.

 

Capital Gains Any capital gains you make from investments in a stocks and shares ISA are tax-free. The rate of CGT outside an ISA has been reduced recently in the last budget by the chancellor from 18% to 10% for basic-rate taxpayers and 28% to 20% for both higher rate and additional rate taxpayers.

 

Interest If you invest in interest-bearing investments, such as corporate bonds and gilts in your stocks and shares ISA, interest is paid tax-free, meaning a saving of 20% tax for a basic-rate taxpayer, 40% for a higher rate taxpayer and a saving of 45% for an additional rate taxpayer.

 

Dividend IncomeIf you earn dividends of more than £5,000 from your investments outside an ISA, you will have to pay tax of 32.5% if you are a higher-rate taxpayer and 38.1% if you are an additional-rate taxpayer. This is obviously not payable if your assets are within an ISA wrapper.

 

There are also other ISAs available including the Junior ISA for under 18s, Help to Buy ISA for home buyers where the government will add £1 for every £4 you save up to a limit of £12,000 therefore an additional £3,000 contribution.  As from next April (2017) the new Lifetime ISA will also be available for under-40s, if you are lucky enough to be that young!

 

We’re happy to help if you have any money questions.

 

 

 

 

 

 

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