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ISA confusion among over 50s: the different products explained

Written by: Joanna Faith
More than half of over 50s say the ISA rules are too complex and there are too many products available.

Research by Saga Investment Services among 10,000 over 50s found almost half think there should be just one ISA available which can be used for whatever savers want, rather than specific ISAs for housing and pensions.

Just 14% of over 50s knew cash ISAs were available to people over 16, and a third were aware an investment ISA was available only to over 18s.

More than half had no idea who could open an Innovative Finance ISA and just 8% knew the new Lifetime ISA – launching in April – is only available to people under 40.

The over 50s also seem confused about the rules around holding and transferring between ISA accounts.

Just 14% knew that children can only hold one junior ISA account with one provider at a time and cannot open a new one each year as is the norm with adult ISAs.

50% were not aware that it is possible to transfer cash ISAs into investment ISAs and vice-versa and another half didn’t know you should transfer between ISA providers – rather than closing and reopening a new one – in order to preserve the tax free status of your savings.

Nici Audhlam-Gardiner, managing director, Saga Investment Services, said: “So many changes have been made to the ISA system over recent years that people are struggling to understand the rules. Britain needs savers of all ages and keeping things simple is the best way to encourage understanding and action.”

Here are the different ISA products available:

Cash ISA

Suitable for:

  • Building up a rainy day fund
  • Short term cash needs
  • Those over 16 years of age
  • Maximum of £15,240 in 2016/17 and £20,000 in 2017/18
  • Can switch into a stocks and shares ISA at any point

Stocks and Shares ISA

Suitable for:

  • Investing to meet medium term goals like children’s university fees
  • Investing for and in retirement
  • Those over 18 years of age
  • Maximum of £15,240 in 2016/17 and £20,000 in 2017/18
  • Can be withdrawn tax-free at any time, and for any purpose

Lifetime ISA

Suitable for:

  • Saving for first house deposit and retirement
  • Open to those between 18 and 40 years of age
  • Maximum contributions of £4,000 each tax year and government bonus of 25%
  • Government bonus available until 50 years of age
  • Tax-free funds, including bonus, can be used to buy a first home worth up to £450,000 at any time from 12 months after opening the account
  • 25% exit penalty if money is withdrawn before the age of 60 and not used towards first home (apart from first year of scheme 2017/18).

Junior ISA

Suitable for:

  • Under 18s only
  • Building up savings for a child
  • Can accept transfers from Child Trust Funds
  • £4,080 annual allowance available to children from birth up to the age of 18

Innovative Finance ISA

Suitable for:

  • Income seekers willing to take risk
  • Over 18s
  • Maximum of £15,240 in 2016/17 and £20,000 in 2017/18
  • Investors can invest in peer to peer loans and crowd-funding debt securities within an ISA and receive interest from those loans tax-free.

Help-to Buy ISA

Suitable for:

  • First time buyers looking to add to the money to put towards a property
  • Regular cash savers
  • Over 16s
  • Maximum of £1,200 in first month and £200 a month thereafter up to £12,000
  • New accounts can be opened until November 2019 and additions to existing accounts permitted until November 2029.
  • The government adds £1 for each £4 you put in, but only at the point at which you purchase the property.

There are 2 Comment(s)

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  • RussellR

    Were these 10,000 random people, or 10,000 who had been researching ISA products? If the former, then why would they be expected to know, as presumably they don’t have need – so don’t need to burden their brains with unecessary information.

    • Kenneth McKeown

      Under Stocks and Shares ISA the last line states that money withdrawn can be used for any purpose I am led to believe that any money withdrawn would be subject to IHT under the 7 year rule Anybody out clarify the situation

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