If you are a saver, then tax on your investments can eat into any gains you make. That's why you might want to consider an Individual Savings Account (ISA), one of the most tax-efficient forms of saving.
An ISA is a tax wrapper, in that it ‘wraps up' your money so that no income tax or capital gains tax is charged on any increase in the value of your savings. There are hundreds of different ISAs to choose from, all falling into one of two categories: cash ISAs or stocks & shares ISAs.
A cash ISA is a secure way of saving, and will accumulate interest each year. You should shop around for the best interest rate.
Stocks and shares ISA
Your investment may grow more in a stocks & shares ISA, but there is a risk involved. The value of your investment can go down as well as up, so there is a chance you could lose some or all of your investment. These ISAs are generally better for longer-term investments, the idea being that you can ride out any short-term dips in value in the hope of better growth over time.
Your ISA allowance
The annual investment limit for all your ISAs is currently £15,240. You can invest up to this sum in any combination of cash and stocks and shares . Remember the allowance renews every financial year, so if April is approaching and you have some spare cash, always see if you have some ISA allowance to use up.
Inheriting an ISA
Both the money held in an ISA and its tax free advantages can be inherited by a spouse or civil partner when the original holder dies. The person inheriting the ISA is allowed to use the full tax-free allowance that was available to their spouse or civil partner, in addition to their own ISA allowance.
Things you might want to consider
Are there any charges involved, and what are they for?
Am I better off investing this money in an ISA, a pension or both?
Is this the best way for me to be tax-efficient with my money?
Which is better for me at the moment - cash or stocks and shares, or a blend of both?