The earlier you start investing in the tax year the more you can benefit from the tax savings so don’t wait until later in the year to make the decision. Make sure you speak to us for a free initial investments review and we’ll help you find the right ISA for you and look at how you can make the most of your tax allowances. We’ve listed a quick guide to tax-efficient saving in the tax year 2016/17 below.
- You can invest £15,240 this tax year in total from 6 April 2016 to 5th April 2017. This will increase to £20,000 from 6th April 2017.
- You can choose how you invest the total amount of £15,240. You can still split it across the two types of ISAs or you can put it all in one.
- You can only hold one active cash ISA and one active stocks and shares ISA in any tax year. Active means that you are adding money to it. You can however have old non-active ISAs in addition, as long as you are not paying into them.
- Any allowance you haven’t used by 5th April 2017 will be lost.
- Previously, if you withdrew funds that part of your allowance could not be reinvested. You lost that amount of your allowance. However, on 6th April 2016, the Government changed this rule. You can now withdraw and reinvest the same amount later in the tax year without losing any of your tax-free allowance. This must be within the same tax year and you must check the limits of your ISA with your provider. This rule does not apply to Junior ISAs.
- You must be 16 to open a cash ISA, or 18 to open a stocks & shares ISA and you must be a UK resident.
Transferring your ISA
If you are thinking about transferring your ISA you have many options:
|ISA wishing to transfer||Transfer to options….|
|Cash ISA current year (Active)||Cash ISA different provider- whole amount||Stocks and shares ISA different provider- whole amount|
|Stocks and Shares ISA current year (Active)||Stocks and shares ISA different provider- whole amount||Cash ISA different provider- whole amount|
|Cash ISA previous year (Non-Active)||Cash ISA different provider – all or part amount||Stocks and shares ISA different provider – all or part amount|
|Stocks and Shares ISA previous year (Non-Active)||Stocks and shares ISA different provider – all or part amount||Cash ISA different provider – all or part amount|
Whenever you are transferring ISAs you must follow the ISA transfer procedures in order to maintain the tax benefit. If you withdraw funds and then pay it into a new ISA it will count towards that year’s ISA allowance.
- For those under 16 a Junior ISA can be taken out. The Junior ISA allowance is £4,080 this tax year. It can again be a cash ISA or a stocks and shares ISA. It remains tax-free until the child turns 18. It can then be transferred to an adult ISA.
- If your child has a Child Trust Fund they cannot have a Junior ISA as well. You can apply to transfer Child Trust Funds to Junior ISAs.
- It can only be applied by a parent or guardian.
- At 16 a child can have both a Junior ISA and an adult cash ISA.
- You can transfer a Junior ISA just like an adult ISA at any point to another provider.
How do ISA’s save me tax?
Normal savings attract tax on interest earned. 20% for basic rate, 40% for higher rate and 45% for additional rate taxpayers. Cash ISAs earn tax-free interest. Stocks and shares ISAs benefit from no tax on the growth you receive and no tax on the interest generated from bonds. You don’t have to pay Capital Gains Tax on profits from an ISA, where normal investments outside an ISA, that earned above the £11,100 capital gains tax allowance, would incur 10% and 20% tax.
Dividends paid from stocks and shares ISAs come with a non-refundable 10% ‘tax credit’ – this amounts to a 10% tax deduction. However, all other income is tax free.
The new Lifetime ISA
Anyone under 40 on 6th April 2017, will be able to save up to £4,000 a year up to the age of 50. The Government will then add 25% of the contributions made within a year at the end of that year. You can take out money at any time, but if you do so before you’re 60 and it’s not for a home, you’ll lose the state bonus and any interest earned. Plus, you may have to pay a penalty charge. Funds can be used to buy a first home (up to £450,000), with the state bonus, at any time from 12 months after opening the account.
Making a financial plan
To make sure you are making the most of all your tax allowances, it is important to get independent financial advice and to make a plan that you can follow. We can provide independent advice on the whole ISA and Pensions market. It’s all about working out what is best for you. We provide a free initial pensions and investments review which will help you towards making and securing a financial plan for the future. Call us on 0333 456 0333 to book an appointment today.
Please note stocks & shares ISA’s are investments, the capital can go down as well as up and you may not get back what you originally invested.
This content is for information purposes only and does not constitute a personal recommendation.