Guide

Pension planning for business owners

Tax-efficient savings - ISAs

An individual savings account (ISA) gives you an alternative - or additional - way of saving for your future. However, saving into a pension is normally the best way to save for retirement as this gives you an income for life. Relying on ISAs without the back-up of a pension can be risky.

What is an ISA?

In the 2018 to 2019 tax year, the maximum you can save in ISAs is £20,000.

There are 4 types of ISA:

  • cash ISAs
  • stocks and shares ISAs
  • innovative finance ISAs
  • lifetime ISAs

You can put money into one of each kind of ISA each tax year.

You can take your money out of an Individual Savings Account (ISA) at any time, without losing any tax benefits. Check the terms of your ISA to see if there are any rules or charges for making withdrawals.

There are different rules for taking your money out of a Lifetime ISA – GOV.UK provides further information.

If your ISA is ‘flexible’, you can take out cash then put it back in during the same tax year without reducing your current year’s allowance. Your provider can tell you if your ISA is flexible.

The pros and cons of ISAs

The advantages of an ISA are that you get more control over your savings and that they are easy to track and understand. ISAs are flexible and unrestrictive in that you can change to another provider and access and invest into the fund at any time. You also do not have to pay income tax on any growth in the value of an ISA.

The disadvantages are that you will miss out on tax relief on initial contributions, plus they may not be a particularly reliable investment for long-term saving as they could be withdrawn in the future.

Read GOV.UK's information on ISAs.