Advanced Investing
4 mins
June 13, 2024

What's The Best Way To Shelter Your Money From Tax?

This article will teach you everything you need to know about the basics of a Stocks and Shares ISA, and how opening one can help to shelter more of your money from tax. But first, it’s important to note straight up that some big changes are coming to ISAs on April 6, 2024

Don’t worry, it’s mostly great news. Here's the lowdown:

First off, there are five types of ISAs:

- Cash ISA

- Stocks and Shares ISA

- Innovative Finance ISA

- Lifetime ISA

- Junior ISA 

Now, let's talk about what's changing and how it affects you:

The Good Stuff

You can now make multiple subscriptions to the same type of ISA in one tax year, maximising your potential returns. Partial transfers of ISAs are now possible, too. This is instead of transferring the whole amount. The result? More flexibility and control over your money.

Didn’t contribute anything to an existing ISA last year? No problem. There’s no need for a fresh ISA application if your existing one didn't receive any contributions last tax year.

You also don’t have to know what you are investing in before you add to your Stocks and Shares ISA. You can simply use your allowance by adding the money to your account and let it sit there as cash until you work out how you want to invest it. This is a great feature because it means you don’t have to make any investment decisions until you’re ready.

Finally, discussions are ongoing about allowing fractional shares within ISAs, which could help investors buy shares they couldn't afford before. Something we’d support 100% at NuWealth.

But Here's the Kicker 

Starting April 6, 2024, both the Dividend Allowance and the Capital Gains Tax (CGT) annual exemption will be cut in half from £6,000 to £3,000. This means you might end up paying more tax next year.

All the more reason, if you’re reading this before April 6th, to fill up your Stocks and Shares ISA.

For the Youngsters

If you're 16 or 17, you won't be able to invest up to £20,000 in a Cash ISA or get the full £9,000 Junior ISA allowance anymore. That "loophole" is closing, so get in while you can.

Tax Year-End Planning

ISAs are still tax-free havens, which is great news, especially with the halved CGT and Dividend Allowance. 

Phew! Now that we’ve gotten the changes out of the way, let’s give you the second part of the lowdown —the essentials you need to know about opening and maintaining a Stocks and Shares ISA.

A Beginner's Guide to Stocks and Shares ISAs

So, you've heard about Stocks and Shares ISAs, but what exactly are they and how can they help you grow your money? Let's break it down in simple terms for all you beginner investors out there.

What is a Stocks and Shares ISA?

Think of a Stocks and Shares ISA as a special savings account that lets you invest in the stock market without paying tax on your profits. It's like a supercharged piggy bank that can help your money grow faster. 

Fun fact: The average return on a Stocks and Shares ISA over the last decade has been a whopping 9.64%.

With a Stocks and Shares ISA, you can invest in a wide range of things, like company shares, bonds, and funds. It's a bit like building your own investment portfolio.

Who Can Open a Stocks and Shares ISA?

Good news! Almost anyone can open a Stocks and Shares ISA as long as you're a UK resident and over 18 years old*. So, whether you're saving up for a rainy day or planning for your future, a Stocks and Shares ISA could be the perfect fit for you.

If you’re under 18, take a look at NuWealth Junior ISA.

The Benefits of a Stocks and Shares ISA:

1. Tax-Free Growth: The biggest perk of a Stocks and Shares ISA is that any money you make from your investments is completely tax-free. That means more money in your pocket!

2. Potential for Higher Returns: While there's always a risk with investing, stocks and shares have historically provided higher returns over the long-term compared to traditional savings accounts. 

3. Diversification: With a Stocks and Shares ISA, you can spread your money across different types of investments, reducing your risk if one investment doesn't perform as well as expected.

4. Flexibility: You can usually access your money whenever you need it, making Stocks and Shares ISAs a flexible option for both short-term and long-term goals.

The Risks Associated With a Stocks and Shares ISA:

1. Volatility: The value of your investments can go up and down, sometimes quite dramatically. It's important to be prepared for these fluctuations and not panic when the market takes a dip.

2. Loss of Capital: There's always a risk that you could end up with less money than you originally invested, especially if you don't diversify your investments or if you invest in high-risk assets.

3. No Guaranteed Returns: Unlike savings accounts, there's no guarantee that you'll make money with a Stocks and Shares ISA. You could end up with less money than you started with, so it's important to do your research and understand the risks before investing.

Is a Stocks and Shares ISA Right For You?

Stocks and Shares ISAs can be a fantastic way to grow your money over the long-term, but they're not without their risks. 

If you're thinking about opening one, make sure you’ve done your homework (check out the other articles listed below), and that you have a clear goal in mind.

Remember, investing is a journey, not a sprint. Stay patient, stay informed, and happy investing.

Don’t forget, tax treatment depends on your individual circumstances and may be subject to change. Past performance is not an indicator of future gains. Your capital is at risk.

Other suggested reading: 🤓

What Are Growth Stocks?

What Are Value stocks?

Why Women Should Invest In Stocks

What Is Capital Gains Tax?

Understanding Inflation In Regard To Your Portfolio

Source 1

Open a Stocks & Shares ISA

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Remember when investing, your capital is at risk.
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