An Old Chestnut

Don’t forget that the Individual Savings Account (ISA) limit is £20,000 for tax year 17/18 and, unlike with pensions where tax relief may be carried forward from the previous 3 tax years, it really is a case of use it or lose it! You may invest in a cash ISA, a stocks and shares ISA, a Lifetime ISA or even an Innovative Finance ISA (such as peer to peer lending) . Any combination of them is allowed as long as the limit is not exceeded.

With the introduction of tax on dividends held outside ISAs (notwithstanding the 0% allowance on the first £5,000 reducing to £2,000 from 6th April 2018) there is an advantage with holding income producing equities within ISAs for both basic and higher rate tax payers. Equally, interest received is tax free and the capital gains tax exemption still applies. It is also worth noting that fund management groups often have a discount for investing within their ISA product compared with their standard unit trust or OEIC funds.

You need to be an UK resident aged 16 or over to open a cash ISA or aged 18 or over to open the other types mentioned above. There is also a Junior ISA for those under age 18 in which £4,128 may be invested. One ISA rule anomaly is that those between aged 16 and up to age 18 may open a cash ISA and a Junior ISA meaning they will be able to save £24,128 in cash tax free.