A stocks and shares Isa is Moneywise users' top choice if they had a windfall
A stocks and shares Isa is simply a tax-efficient account or ‘wrapper’, for which you can choose the underlying investments. All UK residents aged 18 and over are entitled to an annual stocks and shares Isa allowance of £15,240 for the 2016/17 tax year, but you don’t have to invest the full amount.
Putting money into a stocks and shares Isa is likely to be a savvier choice than cash currently, as cash savings rates have tumbled in the light of an expected cut to the Bank of England’s base rate.
- See Stocks and shares Isas: how they work for more information.
The next most popular choice in our poll, which received 1,282 votes in total between 19 and 26 July, is to stash the majority of a £10k windfall into cash savings – with 20% of the votes.
Only 11% of Moneywise users said they’d splurge the cash by spending it, with a combined 28% preferring to either pay off the mortgage or repay debts (each picking up 14% of the votes).
- If you’re struggling, read our how to Climb out of debt.
Just 5% of voters would save the majority of a £10,000 lump sum in a pension, while a further 5% would give the money to children or grandchildren.
See the pie chart below, which you can click to see a larger version of, for a full break down of how you voted.
An unexpected one-off financial gain in cash or shares, generally when mutual building societies convert to stock market-quoted banks. Also windfall tax, a one-off tax imposed by government. The UK government applied such a measure in the Budget of July 1997 on the profits of privatised utilities companies.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.