ISA benefits

An Individual Savings Account (ISA) is a great way to make the most of your tax-efficient savings limit and save for the future.

No income tax to pay

This is particularly valuable if you're a higher-rate taxpayer. For example, if as a higher-rate taxpayer you receive £100 in dividends on an investment that is not held in an ISA, you have to pay an extra £25 in income tax. However if your investment is held in an ISA you won't have to pay any extra tax at all.

This may be worth thinking about even if you're not currently paying higher-rate tax at the moment as you may move into the upper tax bracket in the future. And of course there's no guarantee that the government won't change the tax bands in the future pushing more people into the higher-rate tax bracket.

No Capital Gains Tax to pay

You don't have to pay any Capital Gains Tax (CGT) on your ISAs. It's reassuring to know that no matter how much you invest in the future or how successful your investments are, you won't have to pay this tax. A lot more investors would pay CGT if ISAs didn't exist.

It's not unreasonable to expect a £50 monthly savings plan to generate a lump sum of more than £19,000 over 18 years* - this type of investment could very easily attract CGT if not held inside an ISA.

Receive a tax-efficient income from bonds

You can hold bonds in ISAs and receive a tax-efficient income. Alternatively, you can reinvest your income and use your investment as a way to achieve long-term growth.

Even if you don't want to invest in bonds at the moment, you may want to move money from equity funds into bonds in the future - perhaps when you need to take an income from your investments or if you want to reduce the level of risk in your portfolio as you near retirement.

You don't have to mention ISAs on your tax return

You don't have to tell the taxman about income and capital gains from ISA savings and investments, this makes completing your tax return much simpler.

* Assuming a 7% annualised rate of return on a fund with no initial charge and 1% annual fee, the return would be £19,017 over 18 years. These figures are only illustrative and are in no way guaranteed.

The value of tax savings and eligibility to invest in an ISA will depend on individual circumstances and all tax rules may change in the future.