By Moriah Costa on 17th March 2017
In the second part of a two-part series, digital wealth manager Nutmeg reveals the most stubborn ISA misconceptions.
Investors are flocking to set up Individual Savings Accounts through robo advisors before the tax-year deadline on 5 April. Investments of up to £15,240 can be put into a tax-free ISA.
In the last part of this series we talked to Lisa Caplan, Nutmeg’s head of financial advice, about the myths of ISAs. Click here to see part one.
Myth 7: I can’t use an ISA because I’m not a UK citizen
If you pay taxes in the UK, then you qualify for a tax-exempt ISA, Caplan said.
“Not true: if you pay tax here, you can also enjoy this tax exemption. So don’t miss out on it,” she said.
Myth 8: You can only have one ISA at a time
You can have one of each type of ISA every year. There are a number of ISAs available besides the cash and stocks and shares, such as the Innovative Finance ISA and the Lifetime ISA, which is available for the next tax year, Caplan said.
You can also split up your ISA into different types of accounts and are not limited to investing in just one type of ISA.
Myth 9: Once you’ve opened your ISA you can’t transfer it to another provider
There are actually a lot of options when it comes to transferring ISAs. You can transfer a cash ISA into any other type of ISA and vice versa. You can also change providers. “Making a transfer is as easy as filling out an online form with your new ISA provider – they’ll take care of the transfer, and you don’t need to notify your existing ISA provider at all,” Caplan said.
Myth 10: ISAs are baffling – there are so many of them!
There are really only three main ISAs for adults, Caplan said. Those include your standard cash and stocks and shares ISAs and a third option for those wanting to buy a house, called the Help to Buy ISA. In addition, there’s a way to make peer-to-peer investments through the Innovative Finance ISA.
There are also ISA options for children, called the junior ISA or JISA. The Lifetime ISA will also be available next tax year, which starts on 6 April. This ISA allows individuals to save towards a home or retirement.
Myth 11: There’s no point getting an ISA when interest rates are so low
Cash ISA interest rates are low, but they tend to be higher than other savings accounts, Caplan said. “If you’re willing to take some risk with your money, investing in a stocks and shares ISA can offer inflation-beating returns,” she said.
Myth 12: The end of the tax year is the best or only time to open an ISA
While a lot of people do invest at the end of the tax year, you can make an investment at any time. Caplan advises against waiting until the last minute. “Those who invest at the start of the tax year benefit from a whole year’s compounding interest or investment returns – so there are rewards to be had from starting early,” she said.