‘Can I have two Isas?’: Your biggest Isa questions answered
Billions of pounds has been kept from the clutches of the taxman since individual savings accounts, known as Isas, were introduced in 1999. In the last tax year alone, £67.5bn was saved by adults in Britain, an increase of £2.3bn compared with the previous year.
But while Isas offer a simple chance to save tax free, they also throw up a range of questions. There has been a proliferation of Isas launched in recent years, and accounts now cover everything from savings for children to retirement planning. Here Telegraph Money answers some of your biggest Isa questions.
How many Isas can I open?
I have a standard stocks and shares Isa, and I want to save extra to fund holidays in retirement. Am I also able to open a stocks and shares Lifetime Isa and benefit from a government bonus?
MW, via email
Lifetime Isas can be opened by anyone aged between 18 and 39, but must be used for two specific purposes: buying a first home or paying for your retirement.
As you are looking to save for your retirement, if eligible, you should open a Lisa and benefit from the 25pc bonus on deposits up to £4,000 each tax year.
But you must be aware that you will not be able to access these funds until you reach 60 unless you pay a 25pc penalty on your withdrawals. After turning 60 you will be able to use the cash to pay for living expenses, holidays and care costs.
In your case, you could max out your Lisa and then use your remaining £16,000 yearly allowance to fund your existing stocks and shares Isa.
Where should I save a lump sum?
I moved back into my parents’ house in lockdown, and have saved £10,000. I have a Help to Buy Isa, but where should I put my lump sum? I have looked into Premium Bonds, which are risk free but offer minimal growth, and stocks and shares Isas, which can have a good return, but only if invested for years. I may want to buy a house within the next three years. What should I do?
AS, via email
Interest rates are at historic lows so cash savings now struggle to beat inflation. Paul Fazackerley of Furnley House, a financial adviser, said tax-free investing and saving were both worth considering. Premium Bonds offer the chance to win tax-free prizes of between £25 and £1 million, and account holders can withdraw cash at any time.
“Premium Bonds are great fun, but provide no guaranteed returns,” he said. “However, in a climate of low interest rates, you may feel that the chance to win a cash prize outweighs the benefits of a small amount of interest paid.”
Mr Fazackerley said investing could also be an option. “If it is more likely it will take you five, not three years to buy your first home, then low-risk investing should be a consideration,” he said. Mr Fazackerley suggested using ready-made portfolios from major fund shops suitable for cautious investors.
Can my wife inherit my Isa?
My wife and I are in our 80s and have Isas in our own names. What will happen when one of us passes away? Does the tax-free allowance transfer to the surviving partner?
Isas can be transferred to a spouse or civil partner after death and will continue to enjoy their tax-free status. The recipient will be given an “additional permitted subscription” to their own Isa, which is equivalent to the balances held in the deceased’s accounts.
However, it is important to remember while Isa savings are tax-free during your lifetime, they are not free from inheritance tax (IHT) after death. In your case, no IHT would be due as the surviving partner would benefit from the spousal exemption, which allows assets to be transferred from a spouse or civil partner. However, if someone else was a beneficiary of your estate this could be subject to IHT.
Will I lose my Isa bonus?
My partner already owns a property and we have decided that I am to go on the mortgage and have an equal share in the house. I have a Help to Buy Isa, can I use it for the mortgage? And will I qualify for the 25pc Government bonus by doing so?
My partner used her Help to Buy Isa when initially purchasing the property. I don’t want to lose out on the bonus.
LO’N, via email
Angela Hesketh, of property law firm Jackson Lees, said the Help to Buy Isa could not be used in this instance as this would be a mortgage and title transfer, as opposed to a purchase.
“The Help to Buy Isa bonus must be used towards the ‘purchase price’ and cannot be for any other costs,” she said. “This is a transfer of title and mortgage, so there is no purchase price here.”
Ms Hesketh said that, in this case, adding your name to the deeds would also prevent you from using the Help to Buy Isa to purchase another home in the future, as you would no longer be considered a first-time buyer.
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