Aberdeen Standard Investments

ISAs Explained

5 main things to know

  1. ISA stands for Individual Savings Account.
  2. For tax year 2019/2020 every UK adult can save up to £20,000 a year into an ISA account.
  3. The main benefit is that you won’t pay tax on the gains that you make.
  4. And you don’t need to include any gains in your tax return
  5. You can choose a cash ISA, a stocks and shares ISA or mix both.

Why bother?

If your investments go up in value, the gains they make are described as ‘capital gains’. If you hold investments outside of an ISA, these gains are taxable and need to be declared on your year-end tax return. So ISAs are generally seen to be the sensible account to use first when investing – they minimize both tax and paperwork.

All UK tax payers over the age of 18 can save up to £20,000 every tax year into an ISA and these come in two principal flavours – a cash ISA and a stocks and shares ISA. The tax year runs from 6th April to 5th April every year. So you could, for example, pay in £20,000 to an ISA on 5th April and another £20,000 on 6th April, as these dates fall into two different tax years.

Cash and stocks and shares ISAs are not mutually exclusive – although you cannot pay into more than one stocks and shares ISA in any one tax year, you can have both a cash ISA and a stocks and shares ISA.

Managing contributions

You can either make a single lump sum payment into an ISA, or alternatively set up a direct debit to drip feed in smaller amount every month. This approach will minimize your chances of investing when the markets are at their highest peak for the year – it smooths the price at which you buy in.

Historical trivia fact

Pub quiz boffins may be interested to know that the New Year used to fall on the 25th March, also known as “Lady Day” in commemoration of the angel Gabriel’s announcement to the Virgin Mary that she would become the mother of Christ.  By the late 1500s the Julian calendar was about 10 days adrift from the solar calendar so Pope Gregory moved Europe to the Gregorian calendar. The UK followed suit in 1752, which is why our tax new year now starts on 6th April.