As the end of the tax year approaches (it’s 5th April in case you were wondering) it is worth considering your finances and your allowances for the current tax year. One allowance that should be reviewed is the Individual Savings Account (ISA) allowance. Every UK resident (for tax purposes) who is 16 or over has an allowance of £20,000 to put into ISAs in this tax year1. The important thing to remember is ‘use it or lose it’; if you don’t make use of this allowance you are not able to use it in subsequent tax years.
What is an ISA?
For those who don’t know, an ISA is a ‘bubble’ in which to hold some of your money. Any interest, income or capital gains made by the money inside this ‘bubble’ does not have tax deducted. There are 4 types:
• Cash ISA
• Stocks and shares ISA
• Innovative Finance ISA
In any tax year, an individual can open and put money into one of each kind of ISA, you can put your whole £20,000 allowance into one type of ISA (*the only exception here is the Lifetime ISA which has a pay-in limit of £4,000) or split the allowance across some or all of the 4 types listed above.
Why are ISA’s useful?
The key benefit is the tax-free status of any gains made by money in an ISA. A common misconception is that only Cash ISAs are available, but here at Beaumont we often consider investing our clients’ money in a Stocks and Shares ISA. If the investments make gains (this is not guaranteed) any gains made do not have tax deducted. This means that there is no need to worry about income tax or capital gains tax on money held in an ISA.
If you are interested in investing some money, or already have investments and want to know whether they are held in the most tax-efficient manner, an Independent Savings Account may be a good option. Why not speak to one of our advisers and see whether your ISA allowance can be put to good use before you lose it?
1. An individual must be 18 or over for a Stocks and Shares or Innovative Finance ISA. An individual must be 18 or over and under 40 to open a Lifetime ISA.