Most people have heard of an ISA, and some people already have one. However, the benefits of having an ISA are perhaps not as well-known as they should be – especially when it comes to buying and selling shares through them.
Tax Advantages
That’s because, in the long run, ISAs can have a major impact on your financial future. The main way they do that is because they help you to reduce your tax bill. For example, there is no capital gains tax payable within an ISA and dividend taxes are limited to the 10% paid at source, with them not contributing to your total income used in calculating whether your are a basic or higher rate taxpayer.
Although over the course of a couple of years those tax advantages may not make a big difference, in the long run they can have a major impact on how soon you can retire and how financially free you are in retirement.
Increased Flexibility
Furthermore, ISAs also offer a significant amount of flexibility, which makes them perfect for younger people who want to start planning their long term financial futures. Unlike traditional pensions where any money that is contributed must stay within the pension until you retire, the money you contribute to an ISA can be taken out should you need the funds to purchase a house, car, or in case of emergency.
This additional flexibility can prove to be very useful and may mean that you can contribute more to your ISA than you would normally do with a traditional pension, since you know that the money is accessible whenever you need it.
Additionally, the new form of ISA allows you to invest your annual allowance in cash or shares, with it being up to you to decide what proportions to have. This can be useful because, as well as greater flexibility, it allows you to potentially time stock market rises and falls much more easily, since your return on cash will be relatively appealing.
Open An ISA Now
Clearly, the earlier you can start investing for retirement, the better. And, right now, it is a great time to open an ISA, simply because the financial year-end of 5 April is a matter of weeks away and, by opening an ISA now, it means that you will still have time to contribute this financial year’s allowance of up to £15,000, plus next financial year’s allowance of £15,240. That means that within the space of just a few months you could have a pot of up to £30,240 through which to start building for your retirement.
