The best time to start making big tax savings is today. Whether saving for your first home, retirement or simply investing for the future, setting up a new tax-efficient UK ISA is the best way to make the most of your annual £20,000 tax free ISA allowance.
There are many ways to ensure you are making the biggest tax savings on your investments. And with so many tax-efficient savings & ISA vehicles available, all with their own advantages to consider, it’s impossible to cover them all here.
At Skybound Wealth Management we offer a wide range of choice for investors, giving you the ability to make a choice suited to your own preferences and priorities.
The most common tax efficient savings tool is an Individual Savings Account (ISA for short). A cash ISA is essentially a savings account where you don’t pay tax on the interest you earn, while a Stocks and Shares ISA allows you to invest your money and not pay tax on the returns you receive.
For those who fall into the higher-rate tax bracket, other vehicles that provide legal ways of reducing your tax bill should be considered. Venture Capital Trusts and Enterprise investment schemes are designed to generate investment into small businesses by offering incentives and tax relief in return for your money. Such incentives can often result in higher returns to reflect the greater risk.
Essentially, cash ISA’s are similar to a general savings account in that you can make either regular or a lump sum deposit. However, the key difference is that you will not be taxed on any interest you earn. Any UK resident over the age of 16 can hold a cash ISA and deposit up to £20,000 each tax year.
For those looking for an ISA that has the potential to provide a higher return and aren’t deterred by greater risk. Rather than basic current account, a stocks and shares ISA as its name suggest allows the investor to put their money into a range of investments such as shares, bonds and investment funds.
Launched in 2016, innovative finance ISAs provide savers with the opportunity to invest via peer to peer loans. When your money is loaned out, the borrower will pay back the initial amount plus interest with a pre agreed % of the interest being paid to the investor as returns.
If you are aged between 18-39 you can open a lifetime ISA as a tax efficient way of saving for either your first house or your retirement. Each year you can invest up to £4,000 every year until your 50th birthday, and the government will contribute an annual bonus payment of 25% (up to £1,000). If you initially open a lifetime ISA to save for your first house but then change your mind, you can just save towards your retirement instead. Withdrawals for other reasons are permitted, however any funds will be taxed at 25%.
If you want to put money aside for your children, a junior ISA allows parents and other relatives to deposit up to £9,000 per year. There are two types of Junior ISAs; cash or stocks and shares. Both of which work in the same way as their standard counterparts.
With a cash ISA the biggest risk savers face is underperformance, a lack of return. Interest rates remain at relatively low levels and returns offered by cash ISAs reflect this. Stocks and shares ISAs are reliant on the performance of shares which can go up or down, and peer to peer loans are subject to borrowers being able to meet their repayment terms.
As with anything, the greater risk usually offers the potential of a larger return. Our team of Advisers are perfectly placed to discuss which product suits your needs whilst outlining the pros and cons of each type of ISA.
Knowing the correct investment vehicle for you can't be determined simply by a quick glance on the internet. This would require an in-depth review of your current situation and your aspirations for the future. Contact Skybound now to arrange a complimentary consultation with one of our financial planners to understand what's right for you.
Enterprise Investment Schemes (EIS) are designed to help small companies raise finance by offering tax breaks to investors who purchase new shares in those companies. The maximum investment contribution is £2m. As a result, you can receive 30% income tax relief which can be offset against your earned income for the tax year. EIS shares must be held for 3 years otherwise the income tax relief will be withdrawn. Both of these encourage investment into smaller UK companies by offering tax relief, as you are a higher rate tax payer it may be worth exploring these in more detail.
ISAs are effectively tax free and you are able to contribute £20,000 per tax year per person. Any growth, interest or dividend from the ISA is free of capital gains tax and any withdrawals are free of income tax.
Anyone over the age of 16 years old, if you are under that age you do have an option of opening junior ISA with a limit of £9000 per tax year.
You can reach us directly by calling us between the hours of 8:30am and 5pm at each of our respective offices and we will immediately assist you.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The guidance and/or advice contained within this website are subject to the UK regulatory regime, and are therefore targeted at consumers based in the UK. Skybound Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Registered Office - MBP3, Meadowhall Business Park, Carbrook Hall Road, Sheffield, S9 2EQ. Registered Number 04479650, England. Financial Conduct Authority Number 217994.
The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK. The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk. Neither Skybound Wealth Management Ltd nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
