Most doctors and dentists choose to save into an ISA as part of an integrated savings and retirement strategy. To this extent, it is important to keep up to date with changes occurring in the ISA world. From April 2017, there are several significant changes to ISAs that doctors and dentists should know about. Speak to your financial adviser about implementing these into your financial planning.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
(1) A higher tax-free ISA allowance in 17/18
Last year the ISA allowance was £15,240. This year it has been increased to £20,000.
It is the biggest increase in years and it’s generally good news for you, as you can save an additional £4,760 into ISA’s with no tax implications.
As a reminder, ISA interest is tax-free, compared to tax on other savings, which is typically at least 20%.
(2) The launch of the Lifetime ISA
There has been talk for several years about the Lifetime ISA, known as LISA. From 6 April 2017, this product is now available.
The primary aim for the LISA is to combat two issues; helping young people to buy their first home, and encouraging young people to save for retirement.
It structure enables savings for both to happen simultaneously.
T&C’s include:
- 18-40 are eligible to open a LISA
- A maximum of £4,000 each tax year can be saved into the account
- Up to age 50, the Government will add a 25% bonus to your annual LISA savings fund
- It is possible to continue contributing to your LISA beyond age 50, but the 25% bonus does not apply
- You can contribute up to £20,000 in 2017/18, if you don’t have other ISA’s. If you do the £20,000 needs to factor in all ISA contributions.
The Lifetime ISA bonus can only be withdrawn, tax free, without penalty:
- When you buy a house if you are a first-time buyer, or
- After the age of 60, for any reason.
A LISA fund in retirement, could potentially:
- Be a good supplement to your pension, or
- Bridge the gap between 60 and your state retirement age when you can access your pension without penalty.
(3) LISA bonus to be paid monthly from next year
This year, opening a LISA means that you will be rewarded with 25% bonus on your contributions at the end of the tax year.
From April 2018, the bonus will be added monthly, giving you more flexibility to draw your money sooner, rather than feeling the need to wait until the end of the tax year to earn the bonus.
Also, compound interest will apply as your total ISA fund balance increases monthly, rather than just annually.
(4) The launch of the Innovative Finance ISA
There has been a growing trend in crowdfunding-type investments such as peer-to-peer lending, where you loan some of your capital, and get a share in return.
Subsequently, the government have responded with the Innovative Finance ISA (IFISA).
This ISA offers a potentially higher return on your investment, than a cash ISA or regular savings, however, it is not as safe as cash and the returns, like any investment, are not guaranteed. In addition, your capital can get eroded over time.
It may suit some investors though, that are comfortable with risks associated with different types of investment, and are perhaps looking to diversify.
Want to chat about ISAs? Speak to Darren
If you have an ISA or are interested in maximising your iSA investments in 17/18, speak to Darren.
Tel: 01403 780 770
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