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Invest in ISAs and shield your earnings from tax

by Sable International | Jan 06, 2016
  • If you’re living in the UK, an Individual Savings Account (ISA) is a great way to save while also shielding your investment growth/interest from tax. Most people who have spoken to their bank or a financial manager are aware of cash ISAs. There are, however, also stock and share ISAs, which can potentially yield better returns than the traditionally conservative cash ISAs.

    Cash ISAs

    As expected, when you deposit cash with a bank you earn interest on it. The amount of interest will depend on interest rates and the provider. Cash ISAs, however, shelter this interest from any tax. Unfortunately, due to the low interest rates of recent years, cash ISAs have returned only around 1%. 

    On the plus side, as the funds stay in cash, there is no investment risk associated with cash ISAs. However, if inflation were to creep higher than the interest rate offered by the bank, the real value of the funds will go down.

    Stock and share ISAs

    Stock and share ISAs allow an investor to invest in just about any fund or share that is available in the UK. This means that investors can potentially earn much higher yields than they would in a cash ISA. Note, you can only invest up to £15,240 per annum in these ISAs.

    The biggest benefit of these ISAs is the compound tax-free growth over the years since all the returns, interest and dividends will accumulate in these types of ISAs are tax free. 

    ISA, pension or both?

    ISAs and pensions are very tax efficient ways of investing. Both offer tax-free growth on anything invested in them. There are however few differences. The main difference is the tax relief received on pension contributions which ISAs do not offer. 

    ISAs, on the other hand, are much more flexible than pensions. With an ISA your funds are not locked until retirement (age 55-57 for private pensions) but instead can be paid out any time. There is also no tax on paying funds out of ISA, while pension payments are subject to income tax. 

    These differences make it advisable, if possible, to build funds in both an ISA and a pension. If you have an ISA it can help to supplement your retirement income.

    Investment Choice 

    If you feel that stock or share ISAs are right for you, Sable Wealth can help you pick the right fund allocation. Our advisors will suggest the portfolio that is the most suitable for you and your objectives given your risk profile, capability for loss, and time scale of the investment. We will also manage your portfolio on an ongoing basis and provide regular face-to-face reviews to make sure everything stays on track. 

    It is important to remember that when investing in stocks and shares there will always be risk. A high risk portfolio may yield better returns, but it will also be subject to greater volatility. 

    To begin investing in an ISA, give our wealth team a call on +44 (0) 20 7759 7519. Alternatively, send them an email and an expert adviser will be in touch.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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