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ISAs at 21 – Many happy returns

Over the last 21 years ISAs have served investors well, delivering an estimated £29 billion savings in income tax alone.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Cast your mind back to 1999. ‘The Matrix’ had just hit cinemas, ‘Livin’ La Vida Loca’ topped the charts and Gordon Brown gave us the ISA, a savings and investment account free from UK tax.

If you had money to tuck away you’d have been able buy into the UK stock market when it was 29% lower than it is today and all profits would have been free from UK tax. Little wonder ISAs were an instant hit.

This article should not be viewed as personal advice, should you be unsure if a course of action is suitable please seek advice. Tax rules and benefits can change and depend on individual circumstances. Unlike cash the value of investments can fall as well as rise and you may not get back what you invest.

Made £184,579 - with no tax bill

While the returns from a single year’s ISA could make a nice nest egg, it’s the impact of using every year’s allowance that shows the huge difference ISAs can make to your wealth. If you invested the full ISA allowance at the start of each tax year since 1999, you’d have put away a total of £226,560 to date. If you’d then invested this in a UK Index Tracker, it would have been worth £411,139 by 16 January 2020 – a profit of £184,579 and without owing a penny to HMRC.

Past performance is not a guide to the future.

By 6 April 2020, it’s estimated more than £29 billion will have been saved in income tax alone, with further savings made in capital gains tax.

ISA’s are a brilliant tax-saving solution – which can form the foundation of portfolios. They’re also a lifeline for many savers – particularly those who are paying tax at a higher than basic rate and those who are hoping to build a large cash pot.

More ISAs have joined the family

1999 April: ISAs launched - with mini and maxi ISAs, and cash, stocks and shares and insurance options. The overall allowance was £7,000.

2011 November: Junior ISA launched.

2015 December: Help to Buy ISAs were introduced.

2016 April: Innovative Finance ISAs were introduced.

2017 April: Lifetime ISAs were introduced.

ISAs in 2020 – what they can offer now

The ISA allowance has risen, from £7,000 at launch to £20,000 today.

The tax benefits currently include:

  • All UK dividend income in your ISA is tax free.
  • Any gains made in your ISA are not subject to UK capital gains tax.
  • All interest earned in your ISA is free from UK income tax.
  • If your spouse or civil partner dies you can now inherit an additional ISA allowance known as an Additional Permitted Subscription (APS). This additional allowance will normally be equal to the value held in their ISAs when they died or the value when the ISAs were closed. This allowance is in addition to the ISA allowance of £20,000.

The investment options for your ISA are plentiful. Funds remain one of the most popular ISA investments. Most shares are also eligible, so too are corporate bonds, gilts, ETFs, ETCs, cash and investment trusts.

Little wonder clients often look for a little help to get started. If you’d like to know more about investing our learning hub can help. Simply pick the topics of issues you’d like to know more about – from choosing investments to understanding risk. Plus it’ll point you in the right direction if you decide you’d like some investment ideas.

Learn about investing and how to get started

Some things remain the same

ISAs have come on leaps and bounds in the last 21 years. What remains the same is our belief that, for those with money to save or invest, ISAs should sit on the shortlist of accounts to consider.

ISAs offer savers and investors an opportunity to save time and tax. As ISA investments don’t need to be declared on a tax return you can save time on paperwork and the tax-protected status means you won’t face a bill from HMRC, no matter how well your investments perform.

The big limitation for ISAs has also remained, the ‘use it or lose it’ rule. If you don’t use your ISA allowance in the tax year it’s gone for good.

Find out more about a Stocks and Shares ISA including charges

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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