Do you pay tax on ISA income?
One advantage of an ISA is that your gains are tax-free. So you don't need to declare ISA income on your tax return. You also won't pay tax on interest earned on bonds, or any capital gains tax.
Outside of an ISA, you would pay capital gains tax on profits above your £6,000 personal allowance. You would also pay tax on any dividend income that exceeds your£2,000 per year dividendallowance.
The simplicity and flexibility of an ISA make it a useful part of retirement planning.
Considering risks and diversification
What are the main risks to consider?
As with any investing, returns aren’t guaranteed. If the value of your investments fall, companies may decide not to pay a dividend. Not to mention this will also mean a fall in the overall value of your ISA.
The importance of diversification
As the saying goes, don’t put all your eggs in one basket. You stand a better chance of consistent returns when you diversify – i.e. investing in a range of investments and markets, rather than just one or two. Diversification can be achieved through various methods, and funds typically contain a range of investments, which usually makes them lower risk than individual shares. But not all funds are designed for low risk, so do your research before you invest.
