ISA ISA Baby….. now who doesn’t want free money?


As a mummy to two small children, my newborn Rose is just 3 weeks old and my son Harry is almost 3, I have naturally taken time out to care for my family. This means that my money isn’t flowing as much as it would be if I was working like I did pre-babies!


As a financial planner I have budgeted, saved, and planned for time off, but I can’t magically create money flows when I choose to slow down my working commitments.


So knowing ways that I can keep my wealth growing is vital.


That is why it is super important to make the most of the saving and investment allowances that are available to you each tax year (between 6 April and 5 April).


One simple way of growing your wealth is to use ISAs to boost your savings and shelter them from unwanted tax.


From my experience, as a financial adviser, most people misunderstand what an ISA is. Most seem to think that an ISA is a bank account for your cash that doesn’t pay very good interest.


But this is wrong.


So what is an ISA


An ISA is an Induvial Savings Account. This means it is the tax wrapper that goes around your cash or your investments that defines the taxation and government incentives you receive. So an ISA is not just for your cash!


It isn’t the ISA that offers you a poor rate of return, cash interest rates have been at historically low levels for well over a decade since the credit crisis in 2008. A cash ISA may not offer you the best rate of return but that is why you can consider using your ISA allowance for your investments, that have the potential for much higher returns over time.


Key features of an ISA

  • When you pay money into an ISA, whether you invest in cash or in stocks and shares, the growth or interest that is generated within the ISA is sheltered from tax. Meaning that your returns are protected from tax. This is so important because you already pay enough tax.

  • Each tax year you can pay a maximum of £20,000 a year into your ISA per person.

  • Who can open an ISA?

  • You must be 16 or over for a cash ISA, 18 or over for stocks and shares or innovative finance ISA, 18 or over but under 40 for a Lifetime ISA (more detail below)

  • You must also be either resident in the UK or a Crown servant (for example diplomatic or overseas civil service) or their spouse or civil partner if you do not live in the UK.

  • You cannot hold an ISA with or on behalf of someone else.

Recently new types of ISAs were launched by the Government to provide special incentives to save. So we will look at the ISAs that you can use to get free money from the government!


The battle of the ISAs


Help to Buy ISA

The H2B ISA is no longer available but if you already have one you can continue to pay funds until 30 November 2029 and will have a further 12 months to claim your home bonus.


Key features include:

  • You can save up to £200 a month, kickstart with a lump sum of up to £1,200 AND…

  • The government will add a 25% bonus to your savings up to maximum bonus of £3,000 in total.

  • The minimum government bonus is £400, meaning that you need to have saved at least £1,600 into your H2B ISA before you can claim a bonus.

  • You can buy a home outside of London worth up to £250,000 or £450,000 inside London.

  • Put the bonus towards the value of the home with funds being available on completion.

  • So what this means is that if you are saving for a home you can save up to £12,000 and the Government will add £3,000. And if you don’t buy a home? It doesn’t matter. You can access your money at any time, you simply don’t get the bonus.

Lifetime ISA

The Lifetime ISA has replaced the H2B ISA. It is a more flexible and potentially more tax-efficient alternative than a pension for the self-employed that are basic rate or nil rate taxpayers because there is no tax when you access your money at age 60. With the big difference to the pension that you can access your money if you need or want to!


Key features include:

  • It is designed to help first-time buyers or those looking to save more flexibly (than a pension) for their retirement. Therefore is more flexible than an H2B ISA.

  • You have to be over 18 and under 40 years of age.

  • You can save more money each year into a Lifetime ISA than the H2B ISA. You can put in up to £4,000 each year until you’re 50. You must make your first payment into your ISA before you’re 40.

  • The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. The key difference here compared with the H2B ISA is that the bonus is added immediately with a Lifetime ISA, so that means:

  • The bonus can be invested and grown over time.

  • If you access your money before age 60, you don’t buy your first home, and you’re not terminally ill, with less than 12 months to live then you’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorized withdrawal). This recovers the government bonus you received on your original savings.

  • You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both.

  • You can use your savings to help you buy your first home if all the following apply:

  • the property costs £450,000 or less

  • you buy the property at least 12 months after you make your first payment into the Lifetime ISA

  • you use a conveyancer or solicitor to act for you in the purchase - the ISA provider will pay the funds directly to them

  • you’re buying with a mortgage

  • If you have a H2B ISA and a Lifetime ISA, which is allowed, you can only use one bonus from one ISA to buy a house!

  • Including what you might pay into a Lifetime ISA, you can pay up to £20,000 into your ISAs overall.

Overall the Lifetime ISA is more flexible, you can save up a lot more into it over time and so I can see why it has replaced the H2B ISA, as it offers the opportunity for first buyers and those saving for the longer term.


So the big question for your ISAs is…

Which one is right for you.


If you are under 40 then starting with a lifetime ISA is very sensible even if you don’t know if you will need access. You have a window to take action to get your hands on this free money if are under 40. Even if you start small, it all counts!


If you want to know more about how to manage your money and your mindset, get in touch. Send me an email at hello@emmawrightcoaching.co.uk to arrange a discovery call.


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