A side hustle is a popular way for many to earn extra income, but few realise that an ISA can be one of the most tax-efficient ways to do so. With up to £20,000 tax-free each year, investing in an Individual Savings Account (ISA) can offer significant returns without time-consuming efforts or additional taxes.
Chris Rudden, head of investment consultants UK at Moneyfarm, said: “It’s often easy to overlook, but getting the most out of an ISA, a solution designed to encourage tax-free savings, is one of the most efficient ways of generating an additional source of income.” He explained that by focusing on regular contributions and sticking to a long-term strategy, people can harness the power of compound interest and turn their ISA into a growing asset.
Unlike traditional side hustles, which often require time and effort to manage inventory or track income for tax purposes, an ISA allows investments to grow with minimal input while benefiting from tax-free advantages.
There are five types of ISAs available, including Cash ISAs, Stocks and Shares ISAs, and Junior ISAs. People can choose the best option based on their financial goals, risk tolerance, and needs. More details about each ISA type can be found here.
Data from HM Renue and Customs (HMRC) and the Office of National Statistics (ONS) in 2024 found that 42% of UK adults do not have an ISA, highlighting a missed opportunity for tax-free wealth growth. With an annual contribution limit of £20,000, ISAs offer significant potential for long-term financial growth through compound interest.
In 2024, nearly 5,000 UK residents became ISA millionaires, demonstrating the potential of these tax-free accounts.
Mr Rudden added: “The real strength lies in avoiding short-term withdrawals and letting your investments work for you.
“With patience, discipline, and a long-term horizon for investing, your ISA can become more than just a savings tool; it can be a powerful driver of wealth, offering the opportunity to generate significant returns for your future.”
