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ISA tips

Smart Finance

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Some of the tips i like to remind people when using the ISA accounts are:

1. Don't forget to use your whole family's allowances
2. Don't pay into more than one of the same type of ISA in a year
3. Staying in cash for a long period of time, fear of investing
4. Not using free government bonuses

Don't forget to use your whole family's allowances
Every adult has a annual ISA allowance of £20,000 to save or invest each year. But don't forget that your spouse or partner also has the allowance also, children also get an allowance though smaller limit in their Junior ISA. You can put £4,368 a year as of 2019 into the JISA.

If you manage to max out one of the ISA allowances make sure you take advantage and possibly max out a partners or spouses allowance.

Don't pay into more than one of the same type of ISA in a year
You are only allowance to pay into one of each type of ISA each tax year, so make sure you don't fall foul to this rule.
For example you can invest into a Cash ISA as well as a Stocks and Shares ISA but you cannot invest into two Stocks and shares ISA in the same year.

If you do accidently pay into more than one in a year, the advice from HMRC is don't attempt to fix it, you may close down the wrong ISA.

You can call HMRC's ISA help line 03002003300 to get advice.

There is a similar process if you paid to much into your ISA accounts over the year. HMRC will work out which ISA had the payment into it which breached the limit and will reclaim the money. This can include charging for tax owed.

Staying in cash for a long period, fear of investing
Cash is great for short term goals, those under 5 years away. These could possibly be a holiday, new car or possibly a house purchase to go through soon. Over the short term cash is much more stable than investments but alone does have its risks. If holding cash over the long term you will have the affect of inflation eating away at your money. We find most ISA accounts barely beat the inflation rate (2%) which means over long term you are loosing money.

Investing money is a good way of beating inflation. For example the average stock market return is around 7% after inflation. Say you have invested £10,000 into a stocks & shares ISA after 10 years the investment would have grown to £18,771 assuming a 7.5% annual return with 1% charges.

This will definitely beat any savings account currently. But remember cash short term, investing long term.

Not using government bonuses
You have an account called the Lifetime ISA (LISA) where you can get up to £1000 bonus each year up to the age of 50. You can open a LISA between the ages of 18 and 40 and save up to £4000 a year. This account can be used for a first house or retirement. There are limitations to the LISA as the first house has to be worth less than £450,000, as of 2021 you have to wait till the age of 60 to access or you can withdraw if you become terminally ill with less than 12 months to live. There is a 25% early withdrawal fee which means you could lose more than you put in if withdrawn early.
The plus side of this account is the 25% bonus and the fact that its an ISA account and tax exempt.

What are some of your ISA tips?
 

Metropolitania

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Apr 19, 2021
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The rate of inflation has continued to rise reaching 2.5% in June 2021. While stocks and shares ISAs usually outperform cash ISAs, returns are not guaranteed, and savers cash is at risk. When you see the past performance, there is no guarantee of the future.