The end of the tax year is fast approaching, with less than two weeks left to use any annual allowances and exemptions which you may still not have taken advantage of.
Each tax year starts on 6 April and ends on 5th April the following year and UK residents over the age of 16 get an annual ISA allowance. ISAs are tax free savings accounts and the maximum that can be saved into one is £20,000 per tax year.
Most people are familiar with the benefits of ISAs - tax free income, interest and capital gains – in comparison to traditional cash savings and investments in other vehicles. Savings which remain wrapped in the ISA structure will continue to be tax free, as will all growth and gains.
ISAs can be passed onto a surviving spouse on death too - as we’ve covered previously and which you can read here - without losing the valuable tax free status.
Cash ISA rates have remained low for some time now leading some people to invest into the stocks and shares equivalent instead. The introduction of the Personal Savings Allowance has not helped the cash ISA popularity either, as now up to £1,000 in interest can be earned from deposits without paying any tax, although higher rate taxpayers have a reduced allowance and additional rate taxpayers must pay income tax on all interest earned. The ISA may be a good alternative savings vehicle for higher rate and additional rate tax payers.
Children need not miss out either, as up to £4,128 can be invested per child, though they cannot gain access until the age of 18.
Those saving for their first home should perhaps consider the Help to Buy ISA, which allows savers to obtain a 25% bonus from the Government. The maximum contribution allowed via this scheme is £2,400 each year (£3,400 is allowed in the first year), but savings can only be held in cash. No new Help to Buy ISAs will be available after April 2019 and you cannot pay into a cash ISA in the same tax year.
If you want to pay in more and you are under 40 years old, you can utilise the new Lifetime ISA, which also benefits from the same Government bonus but allows up to £4,000 each year to be saved. The self-employed should consider the use of the Lifetime ISA, as it can also be used to save for retirement, although both the Government bonus and interest are lost if you make withdrawals earlier than the conditions permit.
The end of the tax year represents a good time to make sure that you have utilised your ISA allowances, as if they are not used by 5 April they are lost and cannot be carried forward.
If you’ve already used your annual allowances you can get in early and invest from 6 April. The ISA allowance of £20,000 remains in the new tax year though the Junior ISA allowance increases to £4,260 per child.
You must be aged 16 to open a cash ISA and 18 for a stocks and shares version. Whilst you can hold the different types of ISA, you cannot contribute more than the annual allowance or into the same type of ISA with multiple providers. Transfers between ISAs are allowed and remain tax free in this manner. Some providers now allow you to make withdrawals and put the money back in during the same tax year without the withdrawal affecting your allowance. If you invest via stocks and shares the value of your investment and the income from it may fall as well as rise and you may get back less than you invested.
For independent financial advice and to find out which savings options are best for you, simply contact one of our Financial Planning Consultants at an office near you across Cumbria, Northumberland, Yorkshire and Scotland.
For financial advice and to find out which savings options are best for you, head to our Financial Planning websiteVisit website
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