Individual saving accounts (ISAs) have income tax and CGT advantages.

You can currently invest in one cash ISA, one stocks and shares ISA and one innovative finance ISA in each tax year. This is set to change from April 2024. ISAs are free of UK tax on investment income and capital gains. If you are aged 18 to 39, you can also invest up to £4,000 in a lifetime ISA. However, the maximum investment limit of £20,000 (for 2023/24) applies across all four types of ISA.

Lifetime ISAs

The government adds a 25% bonus to investments of up to £4,000 a year in a lifetime ISA. You can use these savings to help buy a first home (but be wary of the property price cap of £450,000) or keep the funds for retirement. A lifetime ISA will be a more attractive approach to retirement saving than a traditional pension for some, or you can, of course, opt for both forms of pension saving.

The decisions can be complex so taking advice is essential. You will incur a lifetime ISA government 25% withdrawal charge if you transfer the funds to a different type of ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.

Junior ISAs

Parents and others can contribute to a Junior ISA for children up to 18 who do not have a child trust fund. The contribution limit is £9,000 in 2023/24.

Planning point

Information about ISAs does not have to be reported on your tax return and ISAs are effectively inheritable by a surviving husband/wife or civil partner.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.