ISA Accounts: Effortlessly Save (tax) in the UK
Individual Savings Accounts (ISA) are a very popular savings model in the UK. The fiscal will implement in April new fiscal measures that will make them more attractive.
Helping families to increase their savings levels: that was the idea of the North American economist Chris Edwards to suggest the implementation of tax-free personal savings accounts in 2002.
With this new instrument investor would contribute money, up to a certain limit, to a bank account to invest that amount in pension plans, funds, shares, etc., whose profits would be 100% tax free.
In Canada, under the name Tax Free Savings Accounts (TFSA) and in the United Kingdom, where they are called Individual Savings Accounts (ISA), this model has been applied for years. Thus, in the British case, there are about 25 million accounts of this type, which may be both fixed income and equity, with an annual contribution limit set at 15,240 pounds (17,500 euros).
So far there are three classes of ISA accounts in the UK although next April 6, the British Treasury (HMRC) will implement a fourth category.
The differences between each of them is the type of asset that is allowed to enter. It should be noted that an investor can distribute the 15,240 pounds limit as desired on several of these ISA accounts and can withdraw the funds, or transfer them to another ISA account, at any time without losing tax benefits. But what kind of ISAs exist?
- Cash ISAs: No taxes or interest are payable on amounts deposited in connection with savings from bank accounts and building societies, as well as products from the National Savings and Investments (NS&I).
- Stocks and Share ISAs: no taxes or benefits are paid on the assets or money contributed by this account. It allows to enter money from stocks, unit funds and investment funds as well as corporate and government bonds.
- Innovative Finance ISA: has the same conditions as the Stocks and Share ISAs and allows the entry of assets originating from peer-to-peer loans.
For the new fiscal year 2017-2018, the British Treasury will introduce a new ISA mode, the Lifetime ISA account consisting of a long-term tax-free savings account for which a public bond of 25% of the total Up to a maximum of 1,000 pounds per year.
Certainly instruments of this type encourage the saving of families and individuals, who also enjoy important tax advantages. An expansion of this model to other countries, as well as a greater knowledge of it, could make investment more attractive. Meanwhile, in Spain, the Savings Plan 5 or SIALP, created in 2015, does not reach the fiscal attractiveness of its Anglo-Saxon counterparts.
Del Canto Chambers’ Editorial Board