How to save on tax through Individual Savings Account (ISA)

Invest in ISAs and enjoy tax-free earnings.

15:34 28 February 2013

Did you know that higher rate taxpayers usually pay up to 40per cent tax on any interest they’ve earned in a normal savings account? For several people, this can be a whole lot. 

If you want to avoid these huge taxes legally, Individual Savings Accounts or ISAs are your options. Putting money in these ISAs can help you protect your returns from UK Income Tax and Capital Gains Tax. 

 

Right now, there are two kinds of ISAs; cash and investment ISAs. These accounts give you a total allowance of £11,280/year. Up to £5,640 can be in form of cash ISA and the remaining amount can be in form of investment ISA. You can put your full allowance into investment, but not into cash ISA. 

 

However, keep in mind that although the earnings and dividends that you get from your ISAs are mostly not taxable, you may face the risk of losing your investment if you invest in stocks and shares.

 

As you know, the stock market and the economy can be very volatile. Thus, it’s crucial that you study all your options very carefully before you make your choice as this can affect your finances tremendously.