What is an Investment ISA?

If you’re familiar with the investment world then you will know all too well that you have to pay tax on your investments; however, with an investment ISA, tax becomes a weight lifted from your shoulders.

Google Rating
4.6
Based on 73 reviews
js_loader

What is an Investment ISA?

An investment ISA is basically a tax-efficient way of saving your invested earnings. By using a regulated and accredited scheme, you will be able to save your invested earnings, without being stung with a tax deduction. The capital and interest made on your investments will then not have to be taxed.

Generally speaking, every tax year (April- April) you will be given an allowance, currently, £20,000, of which is tax-free- but this will be discussed in more detail as this content goes on.

How does an Investment ISA work?

An investment ISA can also be termed as a stocks and shares ISA, in which you are investing your money into savings that match the current stock market as it both increases and decreases- A risk worth noting.

Although, stocks and shares aren’t the only form of investment that can be coined under an investment ISAs as this also can include:

  • Gilts and bonds
  • Exchange-traded funds
  • Investment trusts
  • Collective investment funds

 

The different types are subject to the ISA provider you choose

Even though investing your money into a stocks and shares ISA is a great way for tax efficiency, it shouldn’t be solely used for this purpose. As previously stated, the rate of interest and capital can both rise and fall, meaning the value isn’t always worth the tax benefits.

For more information on how ISAs can benefit you, is to consult with a financial advisor about the options available, and which type of ISA is the best for your current financial situation.

Annual allowance

It is also worth noting that there are restrictions and allowances when it comes to opening an ISA. You are permitted to open one of each type of ISA per year, and each year, you will receive a new allowance for your tax.

As it stands, the maximum is £20,000, tax-free. If you leave your money in your ISA, you will benefit from this on a tax-efficiency basis.

You don’t actually have to use the full amount of your ISA allowance, as this in itself is just the maximum allowance; but if you don’t, this portion of the allowance cannot be carried onto the following year.

Depending on your provider, you should be eligible to withdraw money from your ISA as long as it is paid back before the remainder of that current tax year is up. This will not affect the £20,000 allowance if it is paid back in a timely manner.

How much will my ISA cost me?

Depending on your provider, some ISAs will have a minimum deposit to open the account. This can vary depending on the type of ISA you wish to open. You will also be able to set up options to either pay money in regularly, deposit a lump sum or have a combination of both.

You should also be able to move cash from one ISA to another, even when they are not with the same provider. A fee may be charged depending on the terms and conditions.

Once the money is in the account, you will be required to pay a customer fee and/or a transaction fee. The customer fee will be calculated on the value of your holdings. This can be from about 0.1%, which estimates at approximately a minimum of £4 and a maximum of £100 per month, depending on your cash value.

In terms of trading, when it comes to buying or selling an investment, charges will be given by your provider. A standard fee for selling/buying online can be as little as £3 for an online transaction fee. Again, depending on the value and provider.

Why get an Investment ISA?

The main reason to invest in an investment ISA is the £20,000 tax-free earnings that cover you from gained interest to capital. If the stock market is working in your favour and on the rise, then you’re onto a winner.

You will be able to access thousands of investment opportunities by using the resources from your provider. This will give you a better understanding of how to use your money and when to withdraw or keep it invested.

Depending on which provider you go with, by consulting with a financial advisor, you can have your best pick of high street providers and banks, to suit what you need for your finances.

ISAs are a great way to build up your earnings, all whilst being in a tax-free allowance. As previously stated, ISAs are at risk of both rise and fall, so think wisely and have a chat with an advisor before you get started.

Related Questions about ISA’s

What happens to my ISA when I die?

If you have a will, you are legally allowed to leave your ISA to a spouse, or whoever you see fit. The investments within the ISA can be sold or they can be transferred, depending on the terms of your conditions. If the ISA isn’t touched, it can be left running for 3 years. One day after this period, your provider will close the ISA.

The ISA cannot receive any more contributions, but it can still to continue to be invested. This includes the tax allowance and both interest and capital gains. If your ISA becomes or forms part of your estate, this will then be subject to inheritance tax, if above the relevant threshold.

All of the above is dependent on your chosen provider. Terms and conditions should always be checked by yourself or with the assistance of a financial advisor.

What happens if I pay too much into my ISA?

HM Revenue & Customs (HMRC) are pretty on the ball with this sort of thing and if you do exceed your allowance and pay too much in, not only will your provider be in touch but your details will also be passed on to HMRC. They will contact you in regards to what happens next.

New policies and legislation can come out after each new tax year so some allowances may even change going forward. As an obvious given, you will not be in the position to gain tax-relief from the money you have overpaid. HMRC will be in contact before the end of the next tax year ending.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

St Barts Finance LTD is an appointed representative of The Openwork Partnership Limited, which is authorised and regulated by the Financial Conduct Authority

All our Advisers are FCA regulated and fully qualified.

Fully GDPR compliant and GUARANTEED quality advice

We are part of one of the UK’s largest Financial Services Nerworks:

We are part of one of the UK’s largest Financial Services Nerworks:

× WhatsApp