Yahoo Finance How a family can save £48,256 tax-free in Isas every year
Increased annual Isa limits allow the vast majority of families to shield all of their savings and investments from tax.
For a couple with two children, the total Isa allowance available to the family is £48,256, which comprises £20,000 for each adult plus £4,128 of Junior Isa allowance per child.
Only a tiny proportion of families would be capable of exceeding these amounts. The median UK household disposable income was £27,200 in the 2016-17 financial year, according to the Office for National Statistics.
According to ONS data released in March, in the 2014-15 tax year 95pc of the population had individual after-tax income of £53,000 or less. Few who earn less than that would be able to comfortably save enough to use their own £20,000 allowance, let alone a Junior Isa.
For their own Isas, adults now have a choice between cash, stocks & shares, peer-to-peer or a combination of the three. For Junior Isas, there are cash and stocks & shares options.
Unlike pensions, there is no maximum amount that can be held in an Isa, and any capital gains, dividends and withdrawals are entirely tax-free. Although annual contributions are capped, there is theoretically no limit to how large an Isa pot could grow through successful investment.
Investing in an Isa over the very long term therefore provides one of the few ways to build up a pot that can provide entirely tax-free income later in life.
There are currently a number of “Isa millionaires” with multi-million pound portfolios thanks to stellar investment performance. In some cases, these people are able to draw six-figure incomes from their portfolios. This is rare at present, but is likely to become more prevalent now that Isa allowances are more generous.
One tax that Isa cash is subject to is inheritance tax. Any amount left behind in an Isa will be counted as part of an estate. There, however, is a provision for surviving spouses and civil partners that allows them to inherit the deceased's Isa while keeping its tax-free status intact.
Pensions pots can often be passed on free of inheritance tax. This often makes Isa pots the more attractive option to spend first.
