With seven weeks to go before the end of the 2018/19 tax year, now is a good time to look at the way your savings are arranged, and make sure they're as efficient as they can be.

You can save or invest up to £20,000 in an ISA in 2018/19 and 2019/20 without paying tax on interest or returns.

This is a useful opportunity to get the most out of your savings, so it's no surprise that around 10.8 million people subscribed to ISAs in the 2017/18 tax year.

There are several types of ISA which will each suit different purposes.

Types of ISA

Cash

A cash ISA can be opened through a number of banks, building societies and financial services companies. It allows anyone over the age of 16 to deposit cash in a tax-free account.

This is the simplest type of ISA, but while interest rates are low it may not offer the best returns.

Stocks and shares

If you'd prefer to invest your savings, a stocks and shares ISA might be more suitable for you.

These can be opened by people over the age of 18, and can include shares in companies, unit trusts and investment funds, corporate bonds and government bonds.

You won't have to pay any tax on returns from these investments up to the ISA allowance.

While these have better potential to keep up with inflation, they can fall in value as well as rise. Make sure you understand your capacity for risk before deciding on this type of ISA.

Innovative finance

It's also possible to take advantage of the ISA allowance while making alternative investments.

Innovative finance ISAs can include peer-to-peer loans and crowdfunding debentures. However, you cannot transfer your existing loans or investments of this type into an innovative finance ISA.

These are higher-risk investments than those in a stocks and shares ISA. Again, it's important to consider the risk before making an investment.

ISAs for buying a home or retirement

Lifetime ISA

You can currently deposit up to £4,000 each year into a lifetime ISA and receive a 25% government bonus up to the value of £1,000 on the amount you save.

This must then be used either to purchase a first home with a value of £450,000 or less, or to supplement your income from the age of 60.

If you don't use it for either of these purposes, an exit fee of 25% applies to the amount withdrawn, meaning you'll lose both the government bonus and some of your own savings.

You must be aged between 18 and 40 to open one, but you can save into it until age 50.

Help-to-buy ISA

In a help-to-buy ISA, you can save up to £1,200 in the first month and up to £200 a month after.

The Government will provide a 25% bonus when you put down a deposit for a home.

Bonuses are only paid on savings of up to £12,000, giving you a maximum government contribution of £3,000.

There must also be at least £1,600 saved in the account before the Government provides the bonus.

The help-to-buy ISA is available until 30 November 2019, at which the scheme will close to new applicants.

Existing applicants have until 1 December 2030 to claim their government bonus.

ISAs for children

Parents can save on behalf of their children into a tax-free account called a junior ISA.

The annual savings allowance for junior ISAs is £4,260 for the 2018/19 tax year, and is set to rise to £4,368 for 2019/20.

Parents or guardians can open the account in the child's name and manage it on their behalf.

The child can then take control of the account once they turn 16, and can withdraw money once they turn 18.

Like normal ISAs, you have the choice of cash or stocks and shares.

Get in touch to discuss personal tax planning.

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