WHO CAN INVEST IN AN ISA?
Stocks and shares ISAs are open to anyone from age 18 who is a UK resident. Cash ISAs are available from the age of 16.
HOW MUCH CAN I INVEST?
Because of the significant tax advantages, contributions into an ISA are restricted, in 2017/18 this allowance is £20,000.
Unlike pensions you are not restricted on how much you can save into an ISA over your lifetime, only each financial year; however if you do not use your allowance, you cannot carry it forward to future years.
TAXATION ON ISAS
All income and capital from an ISA is tax-free: whatever money you take out of an ISA is without tax, no matter how large it grows. In addition, no tax is payable on dividends from shares within an ISA.
The money within your ISA is not subject to tax, and any gains are made tax-free i.e. no capital gains tax is applied on any growth and no income tax is applied to any interest or dividends.
This is a significant benefit of an ISA: the fund can successfully grow in a tax-free environment meaning your capital would grow quicker in an ISA, all othering things being equal.
Taxation on your contributions
Contributions made into an ISA do not attract any tax relief, so what you put in is what is invested (less any fees).
Taxation on death
This is a drawback of an ISA: the full value of an ISA is within your estate when you die and therefore is potentially subject to inheritance tax, which is 40%.
On death, although the widow, widower or bereaved civil partner cannot directly inherit the ISA, they can open an inheritance ISA since December 3, 2014. It’s essentially an extra ISA allowance on top of the annual amount.
The allowance will be the same value as your partner’s ISA value at the date of their death and you put the investment into an ISA in your name, keeping all gains, income and withdrawals tax-free. You have three years after their death to do this, or 180 days after the administration of the estate is complete, if later.