This article was written by Les Roberts, investment researcher at Moneysupermarket.com.
The ISA was introduced to the British public in 1999 and so, as a product, has had a few more years than the LSA to gain the trust of investors.
And those that viewed the LSA with a degree of skepticism should take a look a the popularity of the ISA which is the UK’s most popular investment product for the fourth year running.
The UK currently offers two tax-free savings products, the cash ISA and the stocks and shares ISA, and both offer savers the chance to make money on their investments without the tax man taking a share of the wealth.
But there are restrictions on how much money can be saved and, as of April 6th of this year, the start of the UK’s new financial year, anyone wishing to put money into a cash ISA will be able limited to a maximum of £5,340 per year. The good news is that neither the money put in nor any interest made on it can be touched by the tax man.
Alternatively, those wishing to invest their money into a stocks and shares ISA will be able to invest twice that amount and will still receive all of the capital growth or dividends gained without interference from the tax man.
Another advantage of investing in an ISA is that funds can be transferred from a cash ISA to a stocks and shares ISA without affecting the investment’s tax status or annual allowance.
In other words, if an investor reaches their cash ISA limit of £5,340 but wishes to make further investments then they can transfer this money into a stocks and shares ISA and invest a further £5,340 into that account without paying any penalties.
Furthermore, these tax-free savings can be used for anything that the investor wishes, be it a college fund or a new car.
With the LSA that was proposed in the USA in 2003 but never instated, investors could have saved up to $7,500 per year and whatever is put into this account is non tax-deductable and any returns that are earned are also tax free.
In addition, that LSA would have had no age restrictions and no conditions so anyone investing in one could have spent the money they made on anything they wished.
Another advantage of the LSA would have been that they did not have the restrictions and penalties associated with other government savings schemes, such as the IRA and 401k, and so any withdrawals that were made would have been done so without the fear of taxation or a penalty fee being imposed.
So, it has taken a little under ten years since for the ISA to become the UK’s preferred investment product. Why hasn’t the USA followed suit?
UPDATE from Crystal: This post was based on the article: http://www.gobankingrates.com/savings-account/what-is-a-lifetime-savings-account/ Based on that and my own research, it seems that LSA’s were proposed in the USA in 2003 but never instated. I have changed the post to match that data.
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