Jet ski. Tender. Dinghy. All water vehicles but used for different purposes.
ISA. Pension. Rental property. All investment vehicles but used for different purposes. Do you know what each is and when each should be used?
When you have money to invest, there are different products that you can choose to put the funds into. Factors that affect which is most appropriate include your individual tax position, how long you want to invest for, the purpose of the investment and what you already have in place. ISAs come in these common but different forms: cash, stocks and shares, lifetime ISAs.
Why Use ISAs?
The advantage to ISAs is that your funds grow free of any tax, and there is no tax to pay when you withdraw the money either. At the moment the maximum you can pay into ISAs in a tax year is £20,000, but that can be split between the different types, as long as you only pay into one of each type in that tax year.
Cash ISAs
These, like all cash products, are low risk savings vehicles, a good place to put cash you might need in the shorter term. Check the interest rate on the cash ISAs available as they can vary a lot.
Stocks & Shares ISAs
Stocks and shares ISAs are more suitable for medium- to long-term plans as they carry more risk. How much risk is up to you as you can select the investment portfolio you invest in.
Some can be heavier in equities and carry more risk while others will hold more low-risk assets such as government gilts. It is important to assess your tolerance for risk when selecting a fund and a financial adviser can help you to do that.
Lifetime ISAs
Lifetime ISAs or LISAs have two purposes – to save for your first home (this must be a place you will personally live and not a rental property) or to save for retirement.
The maximum you can pay in per year is £4000, with HMRC adding a 25% bonus, up to a maximum of £1,000.00 per year. So it is a great way to build up a deposit for your first house. If you don’t use it to buy a home to live in, you can leave the money there and use it to supplement your other income in retirement. A LISA could be a cash ISA or a stocks and shares ISA. A financial adviser can help you identify which is right for you based on your plans for the future.
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