How much can I invest in an ISA each year?
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I realised that I haven’t made an ISA investment this year and when I contacted my financial adviser they told me I was too late to get it processed in time before April 5. I normally put about £10,000 into ISAs each year but could probably afford £15,000 this time. Can I do two investments in the new tax year?
Richard Barker of Smith & Pinching responds:
You are not limited by the number of times you invest in an ISA in a given tax year, as long as your total investment does not exceed the annual ISA allowance. This stands at £20,000 for the 2021/22 tax year, so you may not be able to invest as much as you would like this year.
You can only open one ISA account of each type in a given tax year, although you can add funds to multiple existing ISA accounts. There are four types of ISA: Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs.
Cash ISAs can hold savings in bank and building society accounts and some NS&I products. Interest is normally paid on your savings.
Stocks and Shares ISAs hold shares in companies, unit trusts and investment funds, corporate bonds and government bonds. Returns come by dividends, growth in value or, in the case of some bonds, interest. As with any investments, your ISA investments should be appropriate for you as an investor in terms of the level of risk involved.
Innovative Finance ISAs are a little more specialist: they involve either peer-to-peer loans to individuals or businesses, or “crowdfunding debentures” where you invest in a business by buying its debt. IFISAs generally have a much higher level of risk than Cash or Stocks and Shares ISAs and, importantly, they may not be covered by the Financial Services Compensation Scheme if anything should go wrong. I strongly recommend you take independent advice from a Chartered Financial Planner before committing to this type of ISA.
Lifetime ISAs are used to build savings for one of two purposes: either to buy your first home or to fund your retirement. They can hold cash or stocks and shares or a mix of both. Lifetime ISAs have their own specific annual allowance of £4,000, but any investment into a Lifetime ISA must be included in your overall £20,000 annual ISA allowance.
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ISAs are a valuable element to any investment strategy because of their preferential tax treatment. However, if you have more available money to invest than the annual allowance, there are plenty of other investment routes you might consider. You then have the option to transfer these into an ISA framework in a future tax year when you are not using all of your annual ISA allowance.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information please visit www.smith-pinching.co.uk