The Help to Buy ISA is closing from 30/11/19 – although, if you are thinking about buying your first home in the next few years there is still be time to secure one. But whether or not you need a Help to Buy ISA, its imminent demise is a reminder that’s it is time to look at what ISAs are available – and at which might be right for your savings and investment needs.
The ISA was introduced by the government to make saving more worthwhile, by making it virtually tax-free. Most savings and investments are taxed - which reduces the returns you enjoy.
An ISA is simply a container that protects money you put inside it from the taxman. With no income or capital gains tax an ISA can mean potentially better returns than the very same savings or investments held outside an ISA. It’s such a good idea that there is now a whole family of ISAs.
At Continuum, we believe that most people should consider an ISA to help make the most of their money – but that it is essential to pick the ISA that is right for you.
The Cash ISA
Cash ISAs are simply savings plans. You can get a guaranteed return on your savings, and your money is completely safe, up to £85,000 because it is protected by the government’s Financial Services Compensation Scheme (FSCS).
Unfortunately, interest rates are now so low, Cash ISAs can no longer offer attractive returns. What’s more, thanks to the introduction of the Personal Savings Allowance of £1,000 (£500 for higher rate taxpayers) most people no longer pay tax on their savings accounts, making the Cash ISA much less popular.
The Stocks and Shares ISA
Stocks and Shares ISAs are investments, and your money is used to buy shares on the stock exchange, rather than left as cash. Like all investments, this means there can be no guarantees, but in exchange for the risk, you might expect a much higher return.
The Junior ISA
The Junior ISA or JISA allows parents to save up to £4,368 (Tax year 2019/20) on behalf of children under the age of 16. Both Cash and Stocks and Shares JISAs are available.
When the child turns 16, they can put in money - but won’t be able to withdraw it until they turn 18. They then get full control of the account, which becomes an adult ISA.
The Help to Buy ISA
The Help to Buy ISA (or HISA) was created to help people save for their first home and has an important plus. When you come to buy your home, you receive a 25% top-up from the government on the money you’ve put in.
You can put up to £200 a month into Help to Buy ISA, and the bonus is available once you’ve put in at least £1,600. The maximum bonus you can receive is £3,000.
The HISA will be withdrawn at the end of November, and most people will look to a Lifetime ISA instead. But anyone already holding a Help to Buy ISA when the scheme ends can carry on saving into it until 2030, and even if you don't plan to buy a home in the near future, putting even just £1 into an account now could leave you eligible for bonuses later on.
The Lifetime ISA
The Lifetime ISA or LISA offers similar benefits to the Help to Buy ISA, with a 25% bonus worth up to £1000 a year. But instead of only helping you buy a first-time home, the Lifetime ISA can work for life – or at least until you come to retire. It can work alongside your pensions and provide a cash lump sum tax-free when you turn 60. You need to be aged 18-40 to take out a LISA, and you can save up to £4000 per year.
What should you do?
ISAs are a very good idea for most people and are so popular that the government sets limits on how much you can put into your ISA or ISAs each year. This limit is your ISA allowance, and is currently £20,000 for the 2019/20 tax year. Deciding on the best way to use your ISA allowance is essential.
Fortunately, at Continuum, we can help you choose the ISA or ISAs that are right for you, and to integrate them into your wealth creation plan.
For the right answers to your ISA questions simply call us.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested, your capital is at risk.
The Financial Conduct Authority does not regulate deposit accounts.
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