The main benefit of an ISA is the tax wrapper, making any returns generated from savings and/or investments tax-free. This means that you don’t pay tax on profits on stocks and shares held within your Stocks and Shares ISA, on interest earned on bonds, or on dividend income.
Outside of an ISA, you would pay tax on any profits above the annual capital gains tax allowance - which is £12,300 for the 2022/23 tax year - made from investing in stocks and shares. Basic-rate taxpayers would be subject to tax at 10%, while this would increase to 20% for higher-rate and additional-rate taxpayers.
In regards to dividend income, outside of an ISA you would pay tax on anything above the dividend income allowance - which is £2,000 for the 2022/23 tax year. This would be 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
ISAs can also be great for achieving portfolio diversification. As long as you do not exceed the annual ISA allowance and do not add funds to more than one of the same type of ISA per year, it’s completely up to you how you choose to save/invest. For example, you could choose to add £5,000 into a Cash ISA, £5,000 into a Stocks and Shares ISA and £10,000 into an IFISA - making the most of your £20,000 allowance for 2022/23.
CARLTON Bonds are an IFISA provider specialising in fixed term property bonds.
Against a backdrop of low interest rates and a volatile stock market, the IFISA can provide an attractive investment opportunity for experienced investors.
With the ability to hold peer-to-peer loans and debt-based securities, IFISA investments have the potential to generate higher rates of return than more traditional investment routes for investors with a greater appetite for risk.
To find out more about making the most of your annual ISA allowance, download our free guide.