DIY Investor Magazine
/
March 2017
14
‘JUNIOR ISAS ARE A GOOD WAY TO GIVE CHILDREN A
FINANCIAL HEAD START IN LIFE’
Lifetime ISA
The
allows anyone between 18 and
40 to save into a new, more flexible ISA wrapper and
use the proceeds to either get on the housing ladder or
provide for their retirement.
A LISA rewards savers by contributing £1 for every £4
they put away up to a maximum of £1000 per year; it is
a step closer to a Pension ISA which would harmonise
the tax treatment of personal pensions and ISA
wrappers.
When used to save for retirement, you can make no
further contributions one you reach 50 and receive no
additional bonus payments; your pot can be accessed
at age sixty. Money taken out earlier for reasons other
than a house deposit loses the government bonuses
and interest and growth on them, and attracts a 5%
withdrawal fee.
The LISA is a well-intentioned and bold initiative
designed to display the government’s commitment to
savings and investment; it also adds a dimension to
retirement planning –
Best for: LISA is a flexible proposition; younger, basic-
rate taxpayers saving for a home will be attracted by
the 25% boost they receive - potentially £32,000 of
free money; it is good for the self-employed without
an employer paying into a pension for them. There is
no ‘right’ or ‘wrong’ in terms of retirement planning –
individual circumstances will be crucial in deciding
between paying ‘on the way in’ by saving taxed income
in a LISA or ‘on the way out’ with a pension.
FLEXIBLE ISA
A Flexible ISA is not strictly speaking a discrete
product; rather a series of features that can be applied
to a Basic ISA; it allows cash to be withdrawn and
re-deposited in the same tax year, without breaching
overall subscription limits; providers are not required
to implement flexible features so it is important to
understand what a provider supports.
If current year money is withdrawn, the money can be
used to subscribe to a different type of ISA without
having to replace it into the Flexible ISA it was withdrawn
from.
Best for: The Flexible ISA is ideal for savers who need
full access to their cash; this is not just dipping into
current year subscriptions – savers can access prior
year subscriptions to cover short term needs, and
replace them without losing tax benefits.
INNOVATIVE FINANCE ISA
The
allows you
to shelter marketplace, or ‘peer-to-peer’ loans, or
investments via equity crowdfunding platforms.
P2P lenders link lenders direct with borrowers;
investors directly with companies and is something the
government is keen to encourage; however, your money
is not covered by the Financial Services Compensation
Scheme if the borrower defaults or the provider
collapses.
Few providers had achieved regulation for launch –
– but
there is fresh momentum in the sector as investors
desperate for income look for alternatives –
Best for: Those happy to take extra risk to get a better
return, and keen to embrace the new dynamic. P2P may
form part of a prudent ISA investor’s portfolio.
