Make the Most of Your Money: Tax Year 2020/2021

ISAs are considered one of the fundamental vehicles for saving or investing. They are a relatively easy way of making your money work harder for you without having to employ too much thought. For the 2020/2021 tax year in the UK you will be able to deposit £20,000 into a single ISA or across multiple ISAs. Each individual ISA account will have its own rules, such as the amount you can deposit per month and annually.

Make the most of your money - Image explaining what ISAs are - 392991Available ISAs

In the UK you can pay into 4 ISAs per year:

  • 1 Cash ISA
  • 1 IFISA
  • 1 Lifetime ISA
  • 1 Stocks and Shares ISA

However, you don’t have to pay into the four. You could simply have 1 Cash ISA or split your money between a Stocks and Shares ISA and a Lifetime ISA – the choice is yours. Before saving or investing in any ISA make sure to check if the account has any savings caps or investment limits.

Cash ISA

A Cash ISA is a form of savings ISA and is often compared to a regular savings account you’d hold with a bank. However, you don’t pay any income tax on your Cash ISA balance, no matter how much interest you build up. They are considered one of the safest forms of ISA for your money but typically have lower interest rates.

Innovate Finance ISA

With an IFISA you deposit your money into the ISA and it is then lent out. You can pay into one account per year and in return for lending your money you will receive funds back in the form of interest. IFISAs are considered a riskier investment ISA, particularly due to the fact they are not protected by the FSCS meaning your capital is at risk.

Lifetime ISA

Lifetime ISAs are available to those aged between 18 and 40 years old and can be used for a first property or towards retirement. You can also use it to buy your first house and then carry on saving into the ISA for retirement. You don’t pay any tax on income and the government will give you a 25% bonus on any amount paid in.

Stocks and Shares ISA

A form of investment ISA, Stocks and Shares ISAs allow you to invest your money in assets. Your money is blanketed by the tax-free ISA wrapper, so any interest is safe from taxation.

Can I transfer an ISA?

You can transfer between products and providers as many times as you want during a tax year and it doesn’t affect your annual allowance. Some ISAs may come with an exit fee when exiting but rarely are there any other charges.

Transferring an ISA is simple as your previous and new provider typically sort out the finer details for you. The process usually takes between 15 and 30 working days.

You can transfer all or part of your savings depending on your plans. However, for money invested during the current tax year, it must all be transferred. There are just a few difficulties to be aware of:

  • Not all cash ISAs allow inbound transfers
  • You can only have one active Cash ISA
  • Some providers will only let you move money between ISA products in their range
  • Some providers do not allow transfers between

Alternative ISA products

Some ISAs, particularly Stocks and Shares ISAs, allow you to invest in different assets. You can put your money into funds, shares, property and bonds – to name a few opportunities.  Your invested money sits in a tax-free ISA wrapper which means you will never pay a penny in tax on returns generated by your bond investment, for example.

You can invest your ISA allowance with Wellesley via one of their retail bonds. Their Wellesley Property Bond is ISA eligible and allows investor to earn up to 4.00% AER, paid monthly. Wellesley’s retail bonds allow investors to benefit from:

  • Retail bonds that are regulated and listed on a regulated stock exchange
  • Earning tax-free interest on up to £20,000
  • A free account with no hidden fees or charges
  • A fixed-term, fixed-rate investment, so you know how much interest you will earn and when

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Interesting related article: “What is an Investment?