Lifetime Individual savings accounts (ISAs) Self-Invested Personal Pensions (SIPPs) and Stocks can be ideal wrappers for holding investments in funds and shares in a tax-efficient way.
ISAs and SIPPs
Assuming that your investment has grown in value and by sheltering your savings from tax you’ll achieve a greater rate of saving. There are similarities between different types of ISAs and SIPPs. Investing in a range of bonds, exchange-traded funds, shares and bonds is possible and your investment returns are tax-free. The main difference between SIPPs and ISAs is how your funds are accessed.
You can save up to £20,000 with an ISA annually and split these savings between different types of ISAs which include Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs. You are not able to pay into two different Shares ISAs and Stocks but you can for instance, simultaneously pay into Cash ISA and Stocks and Shares ISA. Money can be taken out of most ISA wrappers whenever desired, whilst not having to pay any tax on these withdrawals. Therefore, they are useful for medium-term savings goals like purchasing a property. However, if you use up your ISA allowance you might not be able to save in this way again. ISAs can act as a back-up for financial emergencies so for instance, may be a beneficial way of saving up for your children’s education.
Benefit from tax-free interest
Cash ISAs are like normal savings accounts but with the benefit of tax-free interest. People took advantage of Help to Buy ISAs as a way to get on the property ladder. For those who opened a Help to Buy ISA before 30 November 2019, they are able to continue saving into their account until November 2029 as after this 2019 deadline this option is no longer open to new applicants. However, Lifetime ISAs are another option to help you save for your first property or retirement for those aged between 18 and 39. Lifetime ISAs are available cash and investment formats that can be used to hold any bonds, funds, shares and some warrants.
Stocks and Shares ISA
A popular way of holding investments in bonds, individual companies and funds are a Stocks and Shares ISA. Your investments are paid free of tax into your ISA account and no tax is paid on capital gains and dividends.
Anyone under the age of 18 and living in the UK can benefit from investing in a Junior ISA account. Parents or guardians open and manage this wrapper whilst the savings, a maximum of £9,000 annually, belongs to the child. Whilst for those who lend money via peer-to-peer lending platforms, Innovative Finance ISAs allow for tax-free interest.
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