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An update on ISAs


Cash

These ISAs are the simplest form, but unfortunately at present paying poor returns and in most cases not keeping pace with inflation. Enjoys Financial Services Compensation Scheme Protection up to £85,000 per provider. The ISA limit for 2017-18 is £20,000.

Stocks and shares

All or some of the annual ISA allowance can be invested in stocks and shares. This can be done directly in shares of companies or in bonds, or through funds or investment trusts, which are funds that are traded on the stock market. Investors can also use 'passive' investments, which are low cost and track different markets, such as the FTSE 100. The ISA limit for 2017-18 is £20,000.

Junior

Junior ISAs are for those under the age of 18. Up to £4,128 can be saved into these ISAs in the 2017-18 tax year. At age 18 this money is then converted into an adult ISA, and the child takes control (and can do what they want with the money). The money cannot be withdrawn until age 18, unless the child is terminally ill. As with adult ISAs, the money can be split between cash or stocks and shares.

Lifetime

The Lifetime Isa has a dual purpose - to fund a first-time property purchase and save for retirement. From April 6 2017 you can put £4,000 a year into a Lifetime ISA, which will be topped up with a 25pc government 'bonus', making a total of £5,000. You have to be over 18 and under 40 to open an account but contributions - including the bonus - are paid until your 50th birthday.

If you invested the full amount from 18 to 50 you would receive £32,000 in government bonuses. However, you can only take out your cash penalty free from age 60 or if using it for a deposit on your first property. Cashing in early for any other reason - apart from terminal illness or death - will see a 25pc exit penalty applied. As with other ISAs, you can put money in cash or invest in funds and shares.

For the 2017-18 tax year only, the bonus will be paid at the end of the year. This means no penalty will apply to withdrawals but likewise a property purchase will not benefit from the bonus in that year. From April 2018 the bonus will be monthly.

Help to Buy

Since December 2015 first-time buyers have been able to save into Help to Buy ISAs. You can save £1,200 in the first month of opening an account and up to £200 a month afterwards. The Government tops up your savings by 25pc. The minimum it will add is £400 - so you must save £1,600 or more - and the top-up has an overall cap of £3,000.

A couple can open two separate accounts. There is a £250,000 limit on properties purchased (£450,000 in London), while the Lifetime ISA has a £450,000 limit nationwide. You will not be able to open a new Help to Buy ISA after November 30 th 2019. You can transfer a Help to Buy ISA into a Lifetime ISA in 2017-18 and it won't count towards the £4,000 maximum contribution for that year only.

Innovative Finance

Peer-to- peer savings, where investors lend money to individuals or businesses via an online platform, are currently subject to tax, although the income they generate qualifies for the personal savings allowance. But these investments can also be held inside an ISA - if the provider is regulated and authorised.

Flexible ISAs

If your ISA is classed as a flexible ISA (not all providers are obliged to offer this flexibility), it enables you to pay withdrawn money back into your ISA , without it counting towards your ISA allowance.

What’s an inherited ISA allowance?

Anyone whose spouse or civil partner died on or after 3 December 2014 is eligible for a one-off additional ISA allowance equivalent to the value of the deceased person's ISA at the time of death. This is referred to as an 'additional permitted subscription' or APS allowance, also known as an inherited ISA allowance.

Say, for example, that you saved up £50,000 in your ISA when you die. Your spouse will be able to make an additional contribution to their ISA of up to £50,000, in addition to their own ISA allowance for the year (£20,000 in the 2017-18 tax year).
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