.ISAs, or Individual Savings Accounts have been a feature of the personal finance world since 1999, yet I still get asked if they are ‘worth it’. ISAs protect your money from income tax (such as interest or dividends) and capital gains tax, on any profits realised. You can also make withdrawals free from tax.

So, they’re your friend to shelter money from tax, whilst retaining some flexibility.

There are limitations, primarily how much you can contribute, which for UK residents aged 16 and over, is £20,000 per tax year. For children under the age of 16, there is a Junior ISA, which offers the same tax benefits as a regular ISA.

There are various types for consideration

• Cash ISA
• Stocks & Shares ISA
• Lifetime ISA
• Innovative Finance ISA
• Junior ISA

Cash ISAs are the most prominent. They offer the tax benefits as noted above, for cash savings. There will be an assigned interest rate and the interest is paid tax free into the account. Cash ISAs are typically instant access or fixed term, with the latter committing you to leaving the cash for a period.

Stocks & Share ISAs enable you to invest your money. Here at WKM Wealth, we provide setup & provide investment management for our clients Stocks & Shares ISAs. Any gains or income are free from tax. Frequently our clients seek growth over the long term, but offer flexibility should they want to pay for something, such as a family holiday or new car. There is no fixed-term period or exit penalties, but investments can fall as well as rise.

Lifetime ISAs are a quasi-pension. They are designed to either help you purchase a first home or save for retirement. There are restrictions to be mindful of, which we’ll cover another time.

Innovative Finance ISAs offer the opportunity to lend money to individuals & businesses, through a ‘peer to peer’ process.

Junior ISAs (JISAs) are for children aged 16 and under. Notable differences to a standard ISA including the contribution allowance (£9,000 per tax year, per child) and no withdrawals can be made in normal circumstances until they are 18. These accounts replaced the Child Trust Fund and once a JISA is opened by a parent or guardian, anyone, such as grandparents, can make contributions.

Here are the five reasons why you should invest in a Stocks & Shares ISA

1. Save your money from future tax changes

• Your tax status may well change in future. You might be paying income tax at 40% today, but you could find yourself an additional rate taxpayer at 45% in time. If you have additional income or gains from other investments, it’s possible you’ll pay tax on them.
• Any gains or income within an ISA are free from tax, irrespective of your tax status.

2. Access your money, tax free

• We’re advocates of pensions being a great option for saving for your future, but there are various limitations and rules when you want to access them.
• Stocks & Shares ISAs can typically be accessed without any tax implications.
• They are therefore your flexible and tax efficient friend.

3. Generate a tax free income

• We all need an income, whether to pay for our mortgage and living expenses, or holidays.
• Wouldn’t it be nice if you could support other sources of taxable income, with some tax-free income.
• We have an income portfolio designed to generate an income for clients, particularly useful for ISAs.

4. It will take time to build a sizeable tax-free pot

• Good things come to those who wait.
• Consistency over time is key.
• Make contributions each year and watch your ISA pot grow, but you need to start.

5. Give your children a tax-free pot

• Using a Stocks & Shares JISA could provide the platform to provide your children a pot of tax free money when they reach adulthood.
• Support costs for University or a new car perhaps.

Investing involves risk and you may get back less than you invested.

If you think ISAs are just about Cash ISAs, think again. If you’d like to discuss your financial planning, including ISAs, we’d love to hear from you. Thanks for reading.