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ISA's, BONDS & SHARES

ISA.

An Individual Savings Account (ISA) is similar to a normal savings account with the main difference being that an ISA is a tax free savings account. This means you can save and invest without paying income tax on the interest you earn. ISA typically have a limit to the amount you can save and invest in a single tax year, that currently being £20,000.

It is helpful to note that there may be early withdrawl fees depending on the type of ISA and the bank which provides it.

Investment Bonds.

An Investment Bond is a type of life insurance policy where you invest money into a selelction of available funds. The length of the policies terms will be dependent on the type of bond you choose e.g fixed-term or flexible. There may be a minimum investment threshold typically ranging from £5000 to £10,000.

It is important to remember that the value of your investment can rise and fall and there may be a possibility that at the end of your term you have less money than what you started with.

Risk & Return of Investment Bonds.

Investment bonds vary in their Risk & Return. Investment bonds may sometimes offer a guarantee that you will never get back less than you originally invested. By choosing a bond that gives easy access to your money and a selection of funds you will typically have to endure the ups and downs of the market compared to that of a fixed-term bond.

Taxing Investment Bonds.

Any profit gained from investment bonds is Taxed at 20% which is payed directly out of the investment bond. Withdrawls of 5% of the over all fund are allowed each year without any additional tax charges. These also carry on each year if not used. Although tax has already been deducted at 20%, you may have an additional income tax bill if your profits move you higher than your current tax band.

Stocks & Shares ISA.

A Stocks & Shares ISA is an investment account similar to a normal ISA with the main difference being that you can invest your money into a range of different investments e.g. stocks, government bonds, corporate bonds and more. You can choose to either pay a lump sum investment or to contribute each month throughout the tax year.

It is important to remember that the value of your investment can rise and fall over the period of its term and there is a possibility that you may end the term with less than you started with.

Taxing Stocks & Shares ISA.

Any investment that pays interest, and is held within an ISA is 100% tax-free income. On top of this any profit made from selling investments in stocks and shares is 100% free of capital gains tax. 

It is helpful to note that any losses made on your investments can be used to offset capital gains tax on any other investments.