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That which we call an ISA by any other name would smell as sweet - news article image

That which we call an ISA by any other name would smell as sweet

23 May 2018

4 minute read

Not quite Shakespeare I grant you however, with the proliferation of ISAs that we have seen in recent years, we felt it a good time to run through the options. 

There are effectively now six types of ISA 

  • Cash ISA; 
  • Stocks and Shares ISA; 
  • Junior ISA; 
  • Innovative Finance ISA; 
  • Help to Buy ISA; 
  • Lifetime ISA; 

and two additional options to consider: 

  • Flexible ISA; 
  • Additional Permitted Subscription (Inherited ISA)

Cash ISA 
The simplest of them all. As safe as the bank you place it with but don’t expect a great rate of interest. Shop around for rates and remember that rates change and be prepared to transfer between ISA providers when they do.  

Stocks and Shares ISA 
Gone are the days when you were restricted to one investment house for each ISA as platforms have proliferated offering access to all kinds of funds and direct stocks and shares. Watch the cost, check the platform, decide how much risk you are happy to take and expect that at some point you will look at the value and it will be less than when you last looked. One recent enhancement has been to allow investment into Alternative Investment Market (AIM) companies. Although inherently higher risk, many qualify for Business Property Relief from Inheritance Tax which means that it is possible to shelter ISA investments from Inheritance Tax without taking them out of the ISA and giving the money away. 

Junior ISA 
For those under the age of 18 this allows up to £4,260 (2018/19) to be put into an ISA, either Cash or Stocks and Shares. The child can control the ISA from age 16 but can’t touch the money until 18. It is theirs though so remember that when they reach 18 they can do whatever they want with it. From age 16, you could also open a full Cash ISA and so put up to £24,620 into ISA for your child or grandchild this tax year. 

Innovative Finance ISA  
This allows you to invest via the ISA wrapper into peer-to-peer lending or crowdfunding projects. Your money will be used for lending to individuals or companies and often backed by property. There are options which allow you to pick and choose which loans you want to invest into from a range of borrowers looking for finance. Alternatively some offerings do the hard work for you and you just trust them to get it right and not pick the ones that are defaulted on. 

Help to Buy ISA 
An option for monthly savings, you get a 25% bonus from the Government towards buying your own home on between £1,600 and £12,000 of total savings. The limits on the cost of a house that qualifies are restrictive in the South East (£250,000 house value outside London) and you must never have owned a home or part of one before, including outside the UK or inherited. If the money isn’t used for house purchase you lose the bonus. 

Lifetime ISA  
The ‘new kid on the block’ is having a bit of a problem with its identity. You can open one between 18 and 39 and pay up to £4,000 a year out of your £20,000 allowance into one up to age 50. That investment gets a 25% bonus from the Government but with a catch. The money must be used either to purchase a first property of up to £450,000 or not touched until age 60. Is it an alternative to the Help to By ISA or to a pension? This split personality has meant that these have been slow to take off and although you can have Cash or Stocks and Shares versions, there aren’t yet that many providers to choose from. 

Flexible ISA 
Not really another type of ISA, more an option that ISA providers can include in their ISA terms and conditions. Not available on Junior, Help to Buy or Lifetime ISAs, you provider has the option to allow you to take money out of your ISA and put it back in during the same tax year without breaching the investment limits. Not all providers allow this, nor will it be available on all ISA products offered by a provider (i.e. a lot of fixed rate products wouldn’t allow a further subscription). There may also be charges for the withdrawal. Given the limitations, I’m not sure that it really adds much to the ISA landscape. 

Additional Permitted Subscription 
This change to ISA legislation is something that does really add to the ISA landscape. It gives a widow/er or surviving civil partner the ability to invest an additional amount into an ISA to the value of the ISAs held by their deceased husband, wife or civil partner. This can be done within 3 years if cash is being invested or 180 days if using assets such as the investments your spouse held in their ISA for example. As the money for this doesn’t have to come from the deceased’s ISA, or even for the survivor to have inherited the ISA investments, this presents opportunities for Inheritance Tax planning as well as being able to continue to shelter investments from tax and produce tax free income in retirement. 

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That which we call an ISA by any other name would smell as sweet - news article image

Contact Ed Gibson 01865 292200 or ed.gibson@shawgibbs.com

Author:

Ed Gibson

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