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All investments held in ISAs are free of capital gains tax (CGT) and there is no minimum investment period for funds. However, some plan managers offer incentives, e.g. better rates of interest, in return for a commitment to restrictions, such as a 90-day notice period for withdrawals – therefore, it is worth shopping around.
Lifetime ISA
Any adult under 40 is able to open a Lifetime ISA. They can save up to £4,000 each year, and will receive a 25% bonus from the government for every pound they put in, up to the age of 50. Funds can be used to save for a first home worth
up to £450,000, or for retirement. If the fund is not used for a first home purchase, the funds cannot be withdrawn without a penalty unless an individual is aged 60 or over, or terminally ill, with less than 12 months to live. A withdrawal charge is made if cash or assets are withdrawn for any other reason.
Help to Buy ISA
Help to Buy ISA accounts were withdrawn for new savers
on 30 November 2019. Those individuals that already have
an account can keep saving until 30 November 2029, when accounts will close to additional contributions. Help to Buy offers a tax-free savings account for first-time buyers saving for a home. Savings are limited to a monthly maximum of £200.
The government provides a 25% bonus on the total amount saved, including interest, capped at a maximum of £3,000 on savings of £12,000, which is tax-free. Interest received on the account will be tax-free. The bonus can be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
An individual must claim their bonus by 1 December 2030.
The Innovative Finance ISA
This ISA is designed to encourage peer-to-peer lending. It can be offered by qualifying peer-to-peer lending platforms. Loan repayments, interest and gains from peer-to-peer loans are eligible to be held within an Innovative Finance ISA, tax-free. Returns have the potential to be significantly greater than on Cash ISAs, but they will carry a greater degree of risk.
Some alternative investment schemes
Although generally higher risk, the tax breaks aimed at encouraging new risk capital mean that the following schemes could have a place in your investment strategy.
Enterprise Investment Scheme (EIS)
Subject to various conditions, EIS investments attract income tax relief, limited to a maximum 30% relief on £1 million of investment per annum. The £1 million annual limit is increased to £2 million for individuals making EIS investments in knowledge-intensive companies (KICs), provided that anything above £1 million is invested in one or more KICs. A deferral relief is available to rollover chargeable gains where all or part of the gain is invested in EIS shares (within the required period).
Although increases in the value of shares acquired under the EIS are not chargeable to CGT (as long as the shares are held for the required period), relief against chargeable gains or income is available for losses.
Venture Capital Trusts (VCTs)
These bodies invest in the shares of unquoted trading companies which would qualify for receipt of investment under the EIS. An investor in the shares of a VCT will be exempt from tax on dividends and on any capital gain arising from disposal of the shares in the VCT. Income tax relief of 30% is available on subscriptions for VCT shares, up to £200,000 per tax year, as long as the shares are held for at least five years.
Seed Enterprise Investment Scheme (SEIS)
This provides income tax relief of 50% for individuals who invest in shares in qualifying companies, with an annual investment limit for individuals of £100,000 and a cumulative investment limit for companies of £150,000, and provides a 50% CGT relief on gains realised on disposal of an asset and invested through the SEIS.
A gain on the disposal of SEIS shares will be exempt from CGT as long as the shares obtained income tax relief, which has not been withdrawn, and are held for at least three years.
Your next steps: contact us to discuss...
y Creating a savings and investment strategy
y Establishing and achieving your savings goals y Tax on income and gains
y Investing for your retirement
y Tax-free investments
y The tax consequences of different investments
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