Flexible ISAs way of saving for retirement

Unlike pensions there is no tax relief when paying in but the account is exempt from income tax and capital gains on investment returns, with no tax payable when you draw money from the plan.

Until last year although ISAs weren’t worth having, they were a little unwieldy with quite a lot of restrictions in particular with regards to cash ISA’s. Now they are much more flexible and remain a very flexible way of saving whether for retirement or perhaps a special event in the future.

The maximum amount that you can save is £15,240 per person in each tax year, and this can now be split in any way you wish between cash ISA’s and stocks and shares ISA’s. However, to keep within ISA rules during the tax year you need to pay into just one provider for the cash ISA and one Provider for the Stocks and Shares ISA, if indeed you decide that you want both.

There have been some recent changes to ISAs with the Chancellor introducing Help to Buy ISAs for first time buyers of the future when they are saving for a deposit.

Over a period of years they can save up to £12,000 and the government will add 25 per cent to this figure with this scheme starting in the autumn of 2015. Also, they are allowing an ISA saver that has died who was married or in a civil partnership to transfer the ISA fund to their partner.

This extra allowance is known as the additional permitted subscription (APS) and is not dependent on the surviving spouse inheriting the money in the ISA.

The two types of ISA have different risk profiles with the cash ISA generally carrying no risk of loss of capital. They are normally bought from banks or buildings societies and are based on deposit rates.

Stocks and Shares ISA’s have the potential to beat the measly rates the banks and buildings societies offer but they do come with a risk warning.

These ISA’s can lose money but they do cover a whole spectrum of risk, from investing in to smaller companies to buying government stock.