With less than 7 weeks until the end of the tax year, now is the time to consider making good use of your ISA allowance and squirreling away your hard-earned cash from the tax man, if you haven’t done so already. ISA season is an important time for savers and investors to review their existing ISAs as well as make sure they maximise new opportunities, and with the increased £15,000 New ISA allowance, this time of year has never been more important. To help you make the most of your ISA allowance, we’ve put together out Top 10 tips for the 2015 ISA season.
Tip 1 – Don’t miss the end of tax year deadline
On the basis we can all be guilty of putting off until tomorrow those things which need to be done today, there’s a lot to be said for acting in good time. So before you do anything else ISA-related, make sure you remember the most important end of tax year deadline which is midnight on 5th April. This is the latest date for using your ISA allowance and since it cannot be backdated to a previous tax year – if you don’t use it, you lose it. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers.
Tip 2 – Maximise your ISA allowance
As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put the entire allowance into an Investment ISA (Stocks & Shares ISA), or the entire allowance into a Cash ISA. If you decide to use some of the allowance in one type of ISA, you can also put any remaining balance into the other type. Also remember that these allowances are per person, so a couple can invest up to £30,000 in total before midnight on 5th April 2015.
Tip 3 – Understand what your ISA could achieve
Why pay tax on money that you can protect from the tax man? If you had invested the maximum into an Investment ISA since the 1999/2000 tax year, and it had grown at 7% each year, you would now have a lump sum close to £240,000. This is a significant amount, especially when you consider over £100,000 of this would otherwise have been subject to income tax and/or capital gains tax.
Tip 4 – Think about tax free income
Income is a top priority for many considering the options available with their capital, and so the ability to receive tax free income from ISA investments is an obvious route to consider. For those subject to the minimum 20% income tax rate for example, this takes a headline return of 5% down to 4%, which based on £10,000 over 5 years equates to a difference of nearly £600 in your pocket. For a higher rate taxpayer the situation is even worse, taking your 5% down to 3% which equates to a difference of nearly £1,200. Please note that the tax efficiency of ISAs is based on your individual circumstances and current tax law which are subject to change in the future.
Tip 5 – Review your existing ISAs
It’s not in your ISA provider’s interest to offer you the best deal year after year, and don’t rely on them making sure you are aware that your rate has gone down or that a better account or alternative investment is available because it probably won’t happen, even if it is available from the same provider. Interest rates have been in steady decline, especially for existing customers, and once you’ve deposited your hard earned cash, your ISA provider knows from experience that you’re unlikely to get round to switching providers even if your rate ceases to be competitive. Don’t be that person! It’s down to you to review your existing ISAs.
Tip 6 – Take a risk check
Cash ISAs protect your initial capital (and your initial deposit is normally covered by the FSCS) and offer either a fixed or variable return, whilst Investment ISAs put your capital at risk but with the opportunity to achieve higher returns. Generally the greater risk you take with your capital, the higher the potential rewards. With record low interest rates forcing many ISA savers to consider taking on more risk with their capital in the hunt for higher returns, now is also a good time to review the risk versus reward on offer from both your existing ISAs and any new ISAs you are considering.
Tip 7 – Don’t forget the transfer option
Whilst this time a year ago you could only transfer from Cash ISAs to Investment ISAs, another change which took effect on 1st July last year is that you can now transfer both ways. This greater flexibility brings with it a wider range of options to consider since you can now transfer all previous ISA holdings, regardless of whether they are in a Cash ISA or an Investment ISA, into a single ISA. Remember though not to take your money out of one account and put it into another as you will lose all of the tax benefits. You should never just withdraw the money if you want to transfer – instead, speak to us here at Fair Investment and we will help you through the transfer process. Please also check with your existing ISA provider whether any charges apply on transferring.
Tip 8 – Maintain your ISA at all costs
Whilst your savings and investments remain in their tax-efficient ISA ‘wrapper’, the benefits become more and more valuable over time as the compound effect of not paying tax each year builds and builds. This is why not only should you try and maximise your ISA allowance each year, but you should also aim to make sure your ISA is the last money you dip into since as soon as you take money out of your ISA, it loses these benefits and starts to become subject to tax.
Tip 9 – Get ahead of the game
The ISA allowance will increase to £15,240 from 6th April 2015, so if you want to go one step better than making sure you beat this tax year’s deadline, why not sort out the following year’s ISA allowance as well? As we get closer to the 5th April deadline we have an increasing number of ISA providers who make it easy to contribute both this year’s and next year’s ISA allowance at the same time. So why not start as you mean to go on and get organised right at the start of the new tax year? – with a combined ISA allowance of up to £30,240 over the two tax years, this means one less thing to worry about as well as getting the beneficial tax treatment for the full tax year.
Tip 10 – Review ALL of your options
The range of ISA options to choose from is significant and growing day by day in the run up to 5th April. As the end of the tax year approaches, Cash ISA providers in particular will try and persuade you that their offering is the best destination for your hard-earned money, despite this being a period of record low savings. With an increased allowance, wider investment options and greater transfer flexibility, perhaps never before has it been more important to do your research and consider ALL of your options very carefully indeed. Our range of Cash ISAs and Investment ISAs is constantly being updated to reflect our selection of the best the market has to offer, so keep checking…
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No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may change and may be subject to change in the future.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.
Structured investment plans are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed within the Index is not a guide to their future performance.
