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ISAs are getting a bit crowded.
With Easter eggs in the shop and Hot Cross buns in every bakery you know that the old ‘get your ISAs whilst they are hot’ article is only just around the corner.  So here it is!

Individual Savings Accounts [ISAs] used to be fairly straight forward, but not anymore. After April there will be seven different ISAs to choose from, each with slightly differing objectives, allowance amounts, tax breaks and risk profiles.

A basic ISA

A Basic ISA allows UK Residents to open up a cash ISA from age 16 and a Stock and Share ISA from age 18. The allowance will rise from £15,240.00 to £20,000.00, unless the Chancellor has something up his sleeve in the March budget, from April 6th. Similar to these are Flexible ISAs, the difference being that you will be allowed to replace any funds that you have withdrawn from your ISA, during the tax year, and put it back in before the tax year ends in addition to your allowance for the year. For example, from 6th April 2017, if you take an income of a £1,000.00 per month from your ISA; by the end of the tax year you would be able to put £32,000.00 into your ISA. This is rather good as many people need access to their capital for a short period of time, but don’t wish to lose their ISA allowance that they have built up over years.  Many of our clients rely on the income they take from their ISAs and this flexibility allows them to replace the income taken if they should come into more money. I should remind you that you must put the withdrawn funds back in before the end of the tax year or you will lose that benefit.  For people that want to keep their capital out of their ISA past the tax year end; we still offer our loan account.

Not all ISAs providers offer Flexible ISAs, but some may offer both Basic and Flexible ISAs. Raymond James has kept things simple by converting all Raymond James ISAs to Flexible ISAs to avoid confusion or disappointment.

Additional Permitted Subscription

Additional Permitted Subscription (APS) ISAs came in from 6th April 2015. These provide a special one off ISA allowance to the spouse of a deceased ISA holder equal to the value of the deceased’s ISA at the time of death. The investments can be transferred into an APS ISA even if they have grown in value – but the amount cannot exceed the value at the date of death.

It is possible to transfer the APS ISA allowances from different providers into one ISA scheme and use the recipient’s capital to fund an APS ISA.  This is a particularly useful tool at the time of death as many people lose pension income. APS ISAs can help income efficiency by up to 45% depending on the recipient’s tax status.


Junior ISAs

Junior ISAs are a useful way of saving for children and grandchildren in a tax efficient manner. The current allowance is £4,080.00 per child per year. One thing to bear in mind is that they can’t access the funds until they are 18, nor can you stop them from accessing after age 18. The child cannot have a Junior ISA as well as a Child Trust Fund (CTF) – but a CTF may be transferred into a Junior ISA.

Innovative ISAs

Innovative ISAs: these are still in limited supply, I have certainly not had any reps knocking on the door trying to persuade me to start recommending these. I wonder about the wisdom of these in the retail market. Of course those who already support new ventures through Peer to Peer lending or Crowdfunding should be rewarded by reducing their tax liability for the considerable risk they take. I fear that once these type of investments have an ISA label that they will somehow seem more mainstream than esoteric.

Most investors would not get their wallet out and lend a couple of thousand pounds to the guy or girl next door who is thinking about starting a business. But this is what Peer to Peer lending and Crowdfunding are about, helping start-ups raise capital either in exchange for a share of the business or lending some capital when the bank won’t or the bank charges them a high rate because of the perceived risk of lending to these companies.

I take the view that if a bank won’t lend that the risk must be considerable. Regardless of the size and length of risk warnings many will focus on the interest rates on the advertisement than the possibility of losing 100% of their savings written in the small print. They are not covered by the Financial Services Compensation Scheme (FSCS)

The Sixth and Seventh ISA, Help to buy and Lifetime ISA, we will leave to next tax year. They are the most complex all, you mustn’t be too young, not too old and the government bonuses can be won or lost and deserve a whole article by themselves.

We will be closing in on the first of  the EU elections and Article 50 in two weeks’ time, but don’t let that stop you from reducing your tax bill by using your ISA allowance.




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