What are an ISA allowance and capital gains of allowance?

An ISA (Individual Savings Account) is a form of savings account in which the interest earned is tax-free. Per year, you are given an exemption, which is the total sum you will put into it to benefit from the tax benefit.

You can put up to £20,000 into an ISA per year, but you can't carry it forward to the next year.

First-time buyers can save up to £4,000 tax-free per year in a Lifetime ISA (LISA). If you place your money in a regular bank account that isn't an ISA, any interest you earn above £1,000 will be charged if you're a basic-rate taxpayer. This deduction, known as the personal savings allowance (PSA), is £500 for higher rate taxpayers and £0 for additional rate taxpayers.

The ISA tax-free allowance is larger than the PSA, which is advantageous if you have a larger savings account.

Types of Individual savings account (ISA)

• Cash ISAs: A cash ISA is similar to a conventional savings account, with the exception that you can only deposit a certain amount of money per tax year and you don't pay tax on the interest you receive;
• Stocks and Shares ISAs: This is a tax-free savings plan that protects both capital gains and dividends;
• Innovative Finance ISAs: Finance that is cutting-edge an ISA with peer-to-peer loans, also known as an IFISA, is an ISA with peer-to-peer loans;
• Lifetime ISAs: A government-sponsored savings programme that aims to assist citizens in purchasing their first home and/or preparing for retirement. There are options for both cash ISAs and stocks and shares ISAs.

Who is qualified to open an ISA?

You must be:

• For a cash ISA - 16 years old+;
• For a stocks and shares or creative finance ISA - 18 years old+;
• For a Lifetime ISA - between 18 and 39;
• Resident of the United Kingdom;
• If you do not reside in the UK - a Crown servant (for example, diplomatic or overseas civil service) or their spouse or civil partner.

You are not permitted to keep an ISA on behalf of or in conjunction with another individual. There is an ISA called "Children's Allowance" available for children under the age of 16. Junior ISAs, or JISAs for short, are savings accounts for children that work similarly to adult ISAs.

Having the same suppliers for both stocks and shares and my cash ISA savings?

While some stock and share ISA providers still offer a cash ISA, most people will still use a professional for both.

This allows you to take advantage of the best cash ISA rates from a bank or building society while still investing in stocks and shares ISA through a fund supermarket like Alliance Trust Savings, Hargreaves Lansdown, or Interactive Investor.

Cash in a stocks and shares ISA is normally only kept for a short period of time before you decide where to put it. If you have a big cash balance that you don't plan to reinvest, it's always a good idea to put it in a cash ISA with a bank or building society to get the best rate.

Capital gains tax allowance

The profit you make when you sell something that has increased in value, such as stock and bonds, artwork, or even a second home, is subject to capital gains tax.

The first £12,300 in profit is tax-free, but after that, depending on the tax rate and what you sold, you will be paid up to 28 per cent.

Money kept in any form of ISA is considered investment, and as a result, it can affect your eligibility for benefits. If you have any queries or would like a consultation, please email Persona Finance (enquiries@personafinance.co.uk).