When considering an ISA, a key point to take on board is that ISA’s are not investments themselves, but wrappers which allow investments to be made tax-free.

By putting money into an ISA, it is possible to shelter the proceeds from capital gains tax and income tax.

With the new tax year approaching, now is a good time to review what ISA allowances you have left to use and consider if it is worth topping up before this tax year finishes and you lose this years allowance.

Any investments made within the ISA are, subject to various annual allowances, tax-free. For example, an investor who wanted to put money into assets that paid out income could quite legally avoid tax on that income. Any investments made within the ISA wrapper would not need to be declared to the taxman.

Read about the 10 commandments of saving & Investments

It is therefore just as important to understand the differences between the various types of ISA that currently exist to help you decide which is best for you:

CASH ISA:

You have to be aged 16 or over and a UK resident for tax purposes.You will earn tax-free interest on your cash savings; the maximum contribution is £20,000 for tax year 2021/22.
You can only open one Cash ISA a year, but it is possible to transfer to another Cash ISA or a Stocks and Shares ISA with another provider during the tax year.
You can also have a combination of Cash & Stocks & Shares, within your allowance.
Viewed as low risk and safe as normally taken out with a Bank or Building Society and have no investment risk.
BENEFIT: Suitable place to hold cash on deposit, safe & secure.
DISADVANTAGE: Cash interest rates are currently exceptionally low.

JUNIOR ISA:

Set up by Parents or Guardians and the child must be under 18 years of age.
You will earn tax free growth.
Parents, Guardians and Grandparents can pay in.
Contribute up to £9000 per year, into either Cash or Stocks & Shares.
Child can have control at age 16, but cannot access until age 18.
BENEFIT: Excellent way of setting up long-term tax-free savings for children. Read more about how to make the most of a Junior ISA
DISADVANTAGE: Child has access at age 18 and control over how money is spent.

LIFETIME ISA

You must be over 18 and under 40 years old.
You will earn tax free growth and can be either cash or stocks & shares.
Maximum contribution of £4000 per year and funding stops at age 50.
The Government will add 25% bonus up to maximum of £1000 per year.
Initially set up for First Time Buyers, to save for deposit.
Cannot access until age 60 unless for FTB purchase.
BENEFIT: Great way to save for house deposit with Government bonus or complement existing retirement plans
DISADVANTAGE: You must stop funding at age 50 and Government bonus will also stop.

STOCKS & SHARES ISA

You must be aged 18 or over and a UK resident for tax purposes.
You will earn tax-free growth on your investment, with maximum contribution of £20,000 for 2021/22.
You will have a choice of which funds to invest into as well as environment friendly and sustainable funds and choose your level of risk.
You can choose to invest for growth or income or a combination of both.
You can pay regular premiums or lump sums or both.
BENEFIT: Great way to invest medium to long term and gain tax free growth and income to supplement pension savings and draw income from.
DISADVANTAGE: Value in a stocks & shares can fall and rise.

One of the best ways to review your existing ISAs or to invest for the first time is to consult an Independent Financial Adviser who can look at the whole market to ensure you get the right balance between cash and risk & reward and chose the right type of ISA for you.

Read more about savings at money helper.org.uk

investment values can go up or down and you could get back less than you invest. If you are in any doubt about the suitability of a Stocks & Shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.