You will no doubt be aware of ISAs, or Individual Savings Accounts. These can be one of the simplest ways of unlocking a tax-efficient income, with some bonus features you may not be aware of.
Tax-efficient income is desired by us all, whether that is funding school fees, saving for a special event or big purchase, or for those enjoying retirement who want to avoid drawing more from their pensions/investments to cover tax. ISAs can be extremely flexible and complement other savings, especially your pension.
ISAs can be as simple or as complex as you like. Every year, individuals have a £20,000 allowance (2024/25 tax year) and if you don’t use it, you lose it. Individuals can have a cash or a stocks & shares ISA, or a blend of both. With any unused allowances being lost if they’re not used in the tax year, it’s important to take advantage of the allowance each year to build a pot that can provide a tax-efficient income. For example, £20,000 in an ISA achieving a 5% net return each year equates to £1,000 tax free, whereas a £200,000 ISA pot achieving 5% net per year would equate to £10,000 a year tax free.
The ISA allowance is per individual, so for a couple this means £40,000 a year can be put into ISAs (£20,000 each). It may seem obvious, but starting your ISA strategy sooner can be extremely beneficial.
You may be wondering what the bonus features of an ISA are. ISAs can play an important role in inheritance planning, with individuals being able to invest into shares that qualify for inheritance tax relief (advice is always recommended as these can carry higher levels of risk). Individuals can also use their tax-efficient ISA income to cover the premiums of their inheritance tax life assurance.
Mattioli Woods specialises in ISA planning and can assist with all the above scenarios. Book your free, one-hour meeting to discuss how ISAs can work for you now!
This article was written by Wealth Management Consultant Nathan Smith.
Content correct at time of writing (September 2024).
Important information
As with all investments, your capital is at risk. The value of your investments and the income from them may fall or rise. Past performance is not a guide to future returns. Eligibility and ISA rules apply. Tax treatment depends on an individual’s circumstances and can change. This content is for information only and does not constitute advice.
