Individual Savings Accounts (ISAs) are one of the favoured ways for individuals in the UK to save and invest for their futures.
Since they were originally introduced by the then chancellor, Gordon Brown, in his 1999 Budget Statement, millions of people in the UK have taken the opportunity ISAs provide to save and invest money in a highly tax-efficient account.
Indeed, latest government website figures show that in the 2021/22 tax year, nearly 12 million adults contributed a total of £66.9 billion to ISAs. Meanwhile, a Finder survey revealed that 26% of people plan to contribute to an ISA in the 2024/25 tax year.
As a rugby player, it is important to find the most effective ways for you to save and invest the money you earn from playing professionally.
So, as we approach the 25th anniversary of their launch, read about how ISAs work, the various types of accounts available, and some of the benefits of saving and investing through them.
You can pay up to £20,000 each year into ISAs
An ISA is a tax-efficient savings or investment account. The tax efficiency is derived from the fact that the interest or dividends you receive from an ISA are free from Income Tax and Dividend Tax, and any profit you make on your investments is exempt from Capital Gains Tax (CGT).
You can currently contribute up to £20,000 in each tax year, either to a single account or spread across different types of ISA.
The ISA allowance resets at the end of each tax year and, if you do not use your full allowance in a particular tax year, you will lose the remainder.
While the amount you can contribute each year is limited, there is no maximum withdrawal from your accrued ISA fund and no tax is payable on money withdrawn from them.
There are a range of ISA options
You have a choice of four different types of ISAs that you can contribute to in your own name:
- A Cash ISA, which accrues interest like a traditional savings account
- A Stocks and Shares ISA, where you can invest your money in different assets
- An Innovative Finance ISA, through which your money is put on a lending platform, so you receive the interest paid by the borrower
- A Lifetime ISA (LISA) targeted at those saving a deposit for a first house purchase or towards retirement. LISAs are only available to those aged 18-40.
You may also have a “Help to Buy” ISA, a precursor to the LISA that you can no longer open but may still be able to pay into if you opened one previously.
Additionally, you can put money into a Junior ISA (JISA) for children under 18. This has a lower maximum annual limit of £9,000 and is automatically converted into a standard ISA when the child reaches 18.
Furthermore, the government is currently consulting on the potential of a “British ISA”, enabling you to invest a further £5,000, on top of your current allowance, but only in UK-focused assets.
Previously, you could not pay into multiple ISAs of the same type during a single tax year. But, since 6 April 2024, the government has allowed multiple subscriptions to ISAs of the same type, as well as partial transfers between accounts.
4 key benefits of saving or investing in an ISA
- The tax efficiency
You would normally be liable to pay Income Tax on interest earnings in excess of £1,000 from a standard savings account. If you are a higher-rate taxpayer, the equivalent figure is just £500, and all your interest is taxable if you are an additional-rate taxpayer.
In the same way, you are liable for CGT on any profit you take as income from your investments above your CGT Annual Exempt Amount, standing at £3,000 in 2024/25. Furthermore, you can usually only generate £500 in tax-free dividends in 2024/25.
Meanwhile, none of these taxes are chargeable on money in ISA accounts. Because of this, ISAs are a highly tax-efficient way to save and invest money, and you may want to look to maximise your ISA allowance each tax year because of this.
An additional tax advantage is that you do not need to declare any ISA savings or investments on your self-assessment tax return, though it is clearly beneficial to keep records for your own paperwork.
- Each individual has a £20,000 annual contribution
It is important to remember that each individual adult has a £20,000 ISA allowance, regardless of earnings.
This means that ISA contributions can be an important part of your household financial planning, as you and your spouse or partner can contribute up to £40,000 between you each tax year.
- You have a choice of savings and investment ISA options
The choice of different ISA options creates valuable flexibility.
Do not forget you can split your £20,000 allowance between different types of ISA, so you have different options you can utilise around the money you save or invest.
For example, a Cash ISA can be ideal for shorter-term savings you may want to access within five years or less. Meanwhile, a Stocks and Shares ISA is typically better suited for money you are happy to set aside for a longer period, so could be an ideal option if you are looking to invest money throughout your career for when your playing days end.
Again, remember that you and your partner can save up to £40,000 into ISAs each year between you, so you can strategically use your combined allocation to meet your saving and investment needs.
- The government pays an attractive bonus into your Lifetime ISA
If you are under 40, and are looking to set money aside towards a deposit for a first home purchase, or an early start towards saving for retirement, a LISA could be an attractive option.
Although you must open your account before you are 40, you can put in up to £4,000 each year, until you are 50. This £4,000 counts towards your overall ISA allowance.
The key benefit is that the government will add a 25% bonus to your savings. With the £4,000 LISA limit, that means you can receive up to a maximum of £1,000 each year.
It can also help boost your retirement savings if you have contributed the maximum you can towards your pension savings in a tax year.
Bear in mind that this bonus will be reversed if you take the money out for any other reason other than a first home purchase, or before you reach age 60. In this instance, you will see a 25% charge attached to your withdrawal.
Get in touch
If you are a professional rugby player looking for help managing your money, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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