This is the second in the series of tax wrapper articles I’ve written. Check out my LinkedIn page for a copy of my first Tax Wrapper article about pensions.
A Tax Wrapper is a beneficial structure provided by the UK Government which you can wrap around your savings and investments. These wrappers effectively shield your money from taxes that you would otherwise have to pay.
The Tax Wrapper I would like to talk about this week is a Stocks and Shares ISA:
- An Investor can place up to £20,000 into a Stocks and Shares ISA per tax year ie between 6th April and 5th April in the following year.
- Any growth of the investment within the wrapper* will be free of Income and Capital Gains Tax.
- When the Investor draws out the capital, there is no Income Tax or Capital Gains Tax to pay and any income taken from the fund will also be completely tax free.
- With a steady investment of up to £20,000 each tax year, the fund will grow over time into a substantial fund which can be used to bridge the gap between retirement and a Final Salary Pension Schemes or State Pension becoming payable- in a tax free way.
- When the Investor is fully retired and drawing on their State and Personal Pensions, the ISA Fund can be tactically used to reduce or eliminate the amount of Income Tax being paid.
- Investments which attract Business Relief and so are exempt from Inheritance Tax on death can be put into the ISA Wrapper.
- Children can invest up to £9000 into a Stocks and Shares Junior ISA.
- Although Cash ISAs also have the same tax advantages, the potential for growth is not as good over the long term.
- With a Stocks and Shares Lifetime ISA (LISA) the Investor can invest up to £4000 per tax year in order to save for buying his/her first home purchase (of up to £450,000 in value). The Government will contribute 25% per year ie up to £1000 per tax year.
- A cash ISA can be transferred into a Stocks and Shares ISA without using up any of this year’s ISA allowance.
*The value of a Stocks and Shares ISA can go down as well as up.
In conclusion, using tax wrappers with your investments can save you a significant amount of tax and really boost the growth of your capital.
If you would like to discuss any aspect of a Stocks and Shares ISA, why not ring or face time me for an impromptu chat? I’m happy to help.
Look out for episode 3 of my Tax Wrapper series in a few days time!
Russell Blackhurst Llb dip PFS
Lazenby’s Financial Services
