INVEST TAX EFFICIENTLY
Individual Savings Accounts (ISAs) are free of income tax and capital gains tax, and do not impact the availability of the Savings or Dividend Allowances.
April is the 25th anniversary of Individual Savings Accounts (ISAs). With their tax benefits remaining as attractive as ever, there's no better time to explore the advantages they offer.
Exciting developments are on the horizon, including the introduction of the British ISA, as revealed in Jeremy Hunt's recent Spring Budget.
This innovative addition will provide an extra £5,000 ISA allowance specifically designated for investing in UK equities. While the launch date is yet to be confirmed, anticipation is high for its arrival.
These upcoming reforms aim to streamline the ISA landscape, addressing any inconsistencies and introducing greater flexibility and choice for savers and investors alike.
cash ISAs
stocks and shares ISAs
innovative finance ISAs
lifetime ISAs.
The lifetime ISA can be used to buy a first home or save for later life. Funds are topped up by the government, which adds a 25% bonus, up to a maximum of £1,000 per year.
After the age of 50, no payment into the ISA is allowed, and government top-ups cease. Money can be withdrawn to buy a first home, on reaching age 60 or over, or if someone is terminally ill and has less than 12 months to live. In other circumstances, a withdrawal charge of 25% applies.
Cash ISAs
Stocks & Shares ISAs
Innovative Finance ISAs
Lifetime ISAs
The total that someone can invest in any tax year is set by the government. The limit has not changed for some years: the junior ISA limit is £9,000, and the limit for adults remains £20,000. The overall limit can be allocated across the various types of ISA available.
At present, it is only possible to subscribe to one of each type of ISA each year, but from 6 April 2024, multiple ISAs of the same type will be allowed each year, subject to the overall £20,000 limit. The exception to this is the Lifetime ISA. The limit here is £4,000.
Autumn Statement 2023 also announced some changes to the detail intended to widen the scope of investments permitted within Innovative Finance ISAs. These also take effect from 6 April 2024.
Anyone over the age of 18, who is resident in the UK can open an ISA. In the case of Lifetime ISAs, the applicant must also be under the age of 40. Crown servants and their spouses not living in the UK are also eligible. Junior ISAs are available for children under 18.
Until 6 April 2024, cash ISAs can be opened at the age of 16. From 6 April 2024, this changes, and applicants will have to be 18.
You cannot hold an ISA with anyone else: there is no facility for a joint ISA for spouses. You and your spouse have individual subscription limits, meaning that as a household you can invest a maximum of £40,000.
Although you cannot hold an ISA on behalf of someone else, you can open and manage an ISA for someone in vulnerable circumstances, where they lack the mental capacity to do this for themselves. This can be done by applying to the Court of Protection for a financial deputyship order. In Scotland, the application is to the Office of the Public Guardian in Scotland.
We recommend taking stock of your position before 5 April 2024. ISA limits can’t be carried forward into future years and are lost if not used in the tax year.
Generous tax incentives exist to reward individual investors in young, higher risk companies not listed on a recognised stock exchange, which would otherwise struggle to access finance.
There are three ways to access such relief: by investing through the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and through Venture Capital Trusts (VCTs).
Where the EIS and VCT rules contained sunset clauses, limiting tax relief to shares issued before 6 April 2025, recent legislation has now extended the operation of the schemes. This means that income tax and capital gains tax reliefs for investors in new shares issued before 6 April 2035 will continue to be available.
The potential for tax relief is considerable. With SEIS, for example, a qualifying investor can invest up to £200,000 in qualifying companies in a tax year, receiving income tax relief of up to 50% of the sum invested. Where shares are sold more than three years after the date on which issued, any resulting gain is also free of CGT.
With EIS and VCTs, income tax relief of 30% is currently available on subscriptions for shares. There is also favourable capital gains treatment.
This is a high-level overview, and close attention to the details of the rules is needed.
Please do talk to us for further details.
Enterprise Investment Scheme (EIS)
Seed Enterprise Investment Scheme (SEIS)
Venture Capital Trusts (VCTs)