A Stocks and Shares ISA is arguably the most tax efficient vehicle open to UK investors. You need to be domiciled in the UK but no longer have to be over 18 to enjoy these benefits. If you don’t have a Child Trust Fund for your child and he/she was born after 3rd January 2011 you can open a Junior ISA (JISA). From 16 you can add to a Cash ISA, even if you have a JISA and when 18 transfer all of them to a Stocks & Shares ISA. Very few children have the potential to achieve this level of investment but it could be fulfilled with Family or IHT planning. For example, if you have surplus income you can use this to start them on their way.
From 5th April 2019 the contribution limit is £20,000 p.a. / £1,666 p.m. It is possible therefore for spouses to move £40,000 of investments/cash each year into ISAs. The JISA limit is £4,368 p.a.
A fairly new feature is that any withdrawals made during a tax year can be paid back with the same tax year. This includes adviser fees and so if you are a client withdrawing a regular income, and still have assets in a General Investment Account where dividend income is subject to income tax, you are able to move more than £20,000 in each tax year into the ISA.
ISAs are very important investment vehicles as they have the following benefits: –
- Any dividends that are paid into an ISA gross will not be subject to any income tax at any level.
- Nor will they count towards your annual income when working out which tax bracket you are in. It is possible that some clients can drop down a tax bracket with the use of ISAs.
- Any Capital Gains made in an ISA will not be subject to Capital Gains Tax (CGT). Naturally, the opposite applies in that if any losses are realised, they cannot be carried forward to offset capital gains later.
Investing as early as possible is a key to a successful retirement. If you contribute £5,000 p.a. with a compounding growth rate of 5% each year and you start when you are 25, your ISA would be worth £639,199 when 65. If you start just 10 years later, then it will only reach £353,803. Almost half the value.
For the full list of benefits please see the glossary on ISAs or contact me if you wish to start or transfer one.