Individual Savings Accounts (ISAs) remain amongst the most straightforward of tax efficient investments and as a result, continue to be a favourite with investors.

The key benefit of an ISA is its tax advantages: there is no income tax or capital gains tax due on any withdrawals. Therefore, you can make investment decisions based solely on investment merit, rather than the need to consider tax implications. Additionally, there is no need to report for any income generated or capital gains made within the ISA (as it is not included on an individual`s self-assessment tax return).

The tax benefits available might not appear great now, particularly if you have only recently started to invest, however, with the passing of time, additional investments and ongoing growth in the account, this could change considerably. The net result could be an increasing part of your overall wealth being in a tax-privileged environment. ISAs were introduced in 1999 to replace Personal Equity Plans (PEPs) and, according to a recent report*, there are now over 168 ISA millionaires!

ISAs offer flexibility so you don`t need to tie up your funds. If you need to use the money elsewhere, you are free to do so. You can also transfer and manage ISAs from one provider, as well as one type of ISA - Cash ISA or Stocks & Shares ISA - to another.
 
A few years ago a new feature was introduced which allows the surviving spouse or civil partner of a deceased ISA investor to inherit their ISA investments in full, with all the tax advantages remaining intact. This is in the form of a special ISA allowance, which is over and above the normal annual allowance. This allowance is the value of the deceased persons ISA investment at the date of death, plus any growth to the date of transfer.

For the current tax year (2018/19), up to £20,000 can be invested into an ISA. One of the suggested 10 steps to building a million pound ISA* is to use as much of your allowances as possible and to invest wisely. You have until 5 April 2019 to use your allowance for this tax year but if you don`t fully use it, anything not used is lost forever.

However a word of caution. Whilst ISAs offer attractive benefits, they are not suitable for every situation. For example, if you are a trustee responsible for investing trust fund monies, you are not allowed to invest in an ISA. Also ISA investments will form part of your estate and may, therefore, be subject to inheritance tax.

Source: *This is Money, April 2018

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