ISA planning for Barristers
Whilst most are familiar with the relatively well known cash or stocks and shares ISAs, the ‘newer ISAs on the block’; Innovative and Lifetime, may need a bit more of an introduction.
Innovative ISA
This allows you to invest in peer to peer (P2P) lending within in an ISA wrapper. P2P is the process of lending your money to other individuals for a set period of time for a set rate of return. By removing the middle man of the bank, lenders can get better rates of return on their cash and borrowers can pay a lower rate of interest.
In theory, the process should lead to a better outcome for both lenders and borrowers. However, they clearly come with their own risks in that the borrower may default and you could be left with nothing.
Lifetime ISA (LISA)
The LISA was introduced in the 2017/18 tax year and designed to be used by either first time house buyers or saved for later life income. You can put in up to £4,000 each year until you are 50 and can be opened from age 18-39. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. You can withdraw funds from a LISA any time, but if you do this before the age of 60 and it does not relate to a qualifying house purchase, you could be hit with a penalty.
Broadly speaking, for the majority of people saving, a LISA is most efficient for first time house buyers, so this could be an option for yourself or those seeking to help children/grandchildren onto the property ladder. ISA Planning Whilst most are familiar with the relatively well known cash or stocks and shares ISAs, the ‘newer ISAs on the block’; Innovative and Lifetime, may need a bit more of an introduction.
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Junior ISA (JISA)
Junior ISAs are long term tax free savings accounts for children. In order to open a JISA, a child must be under the age of 18 and be living in the UK. The current limit for JISAs is £9,000 a year. Like the standard adult ISA, children can have either a cash or stocks and shares JISA.
Parents or guardians can open and manage a JISA on behalf of a child, however, the money belongs to the child. It is important to remember that whilst children can take control of their own JISA at age 16, they will not be able to access any of the proceeds until they are at least 18.
Equally important to remember, is that children are entitled to their JISAs at 18 and can do as they wish with the funds. Whilst some providers may offer what look like attractive interest rates on cash JISAs, you must be careful to remember that if the child has a number of years before they can access the fund, it may be better off being invested into stocks and shares.
Given time, this would be expected to give returns beyond any cash JISAs. Anyone can add money to a JISA for a child, so parents and grandparents could see this as a good opportunity to build savings for a child in a protected ‘environment’.