With the end of the tax year less than a month away, making sure you use your ISA allowance to take advantage of one of the UK’s most popular tax shelters should be a top priority. But if you are wondering why you need to consider your ISA options or what all the fuss is about, we offer you 5 good reasons to use you ISA allowance.
1 – The allowance has never been higher…
At the start of each financial year, HMRC set a limit on the amount each individual can put into an ISA over the course of the next twelve months – 6th April to the following 5th April. This is known as the ISA allowance. This year’s allowance is £15,000, which is the highest it has ever been, and after 5th April 2015 it will rise further still, to £15,240. Because many ISA providers are open to ISA applications for this tax year and the coming tax year, this means that each individual could potentially put away £30,240, tax-free, this ISA season. That’s £60,480 per couple.
2 – …Or more flexible
In previous years, you could only hold up to half the annual ISA allowance in a Cash ISA and the rest had to be put into Stocks & Shares ISA. This year, the way in which ISAs work changed – there’s now no restriction on how you use your allowance, as you can use the full amount for a Cash ISA, an Investment ISA, or a mixture of the two in any proportion you wish.
3 – Shelter your money from the tax man – you don’t pay tax on any income or growth
Any interest received or capital gains made are not then subject to tax, whether held in a Cash ISA or an Investment ISA, and there’s no need to declare it on your tax return. If you’re a higher rate taxpayer this means that you get to keep hold of 40% more of the interest on your hard-earned cash than you would in a non-ISA savings account. Based on £10,000 receiving a 5% annual return, this is the difference between receiving £500 within an ISA or £300 outside of an ISA (or £500 versus £400 for a basic rate taxpayer). Why let the tax man take away money that you could otherwise keep?
4 – Choose from plenty of ISA options for your hard earned money
Nearly all of the savings plans and investments that we offer can be held within an ISA, so both savers and investors will have a number of options to choose from, whether you are new to ISAs or more experienced. Even if fixed rate Cash ISAs are not looking that appealing, there are always alternatives to consider as well the option of using your Investment ISA allowance. This also means that making the right selection can make a big difference.
5 – Take advantage of ISA transfers
Many of us already have existing ISAs, opened in previous tax years in order to protect our capital along with any income or growth from the tax man. However, like so many other savers and investors, you may find that your ISA is no longer paying a competitive rate or your investments are underperforming – this is where the ISA transfer can help. Nearly all Cash ISAs and Investment ISAs permit you to transfer existing ISAs to them without charge, although don’t forget to check whether there are any penalties from your existing provider. Remember that now you can transfer between Cash ISA and Stocks & Shares ISAs with any restriction, so don’t waste the valuable tax efficiency of an ISA by keeping it in a low paying savings plan or poorly performing investment. There is a wide choice available.
Start a new ISA, transfer your current ISA or apply to use next year’s allowance today
The current ISA allowance is available now and many of the savings accounts and investments available through Fair Investment Company will also accept dual ISA applications – this means you can cover this year’s ISA allowance and your full ISA allowance for the next tax year all in one go. You can also transfer any existing ISAs at the same time so there’s no excuse for missing out on this valuable tax break – what are you waiting for?
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Please note that this information is based on current law and practice which is subject to change.
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 is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.
