Don’t forget about making the most of your tax allowances, there are just 4 days to go until 5th April. It’s important to make sure you are using all the allowances available to you to maximise your savings and investments. If you are unsure how much you can invest, take a look at our quick reminder guide below.
- The tax year runs from 6th April one year to 5th April the next
- You can invest £15,240 this tax year in total from 6 April 2015
- You have to be at least 16 to open a cash ISA, or 18 to open a stocks & shares ISA and you must be a UK resident.
- Since 1st July 2014, instead of having limits set by the Government for how much you can invest in a cash ISA and how much in a stocks and shares ISA, you can now choose how you invest the total amount. You can still split it across the two types of ISAs or you can put it all in one. Don’t forget thought the amount you invest in total across both types must not exceed £15,240.
- Any unused allowance doesn’t get carried over to the next year.
- Any savings invested in ISAs continues to benefit from the tax efficiency as long as it remains invested. If you withdraw funds that part of your allowance cannot be reinvested. So if you invest £15,000 and then withdraw £2000, you will still only have £240 left of your allowance the £2000 is effectively lost.
- 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 18% and 28% for higher rate taxpayers. From 6th April 2016 the Capital Gains Tax limits will be 10% and 20% respectively.
- 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.
- You can only hold one active cash ISA and one active stocks and shares ISA in a tax year. Active means that you are adding money to it.
- You can transfer ISAs between providers but make sure you apply for an ISA transfer, in order to maintain your ISA allowance, rather than withdraw the money to reinvest.
- You can transfer an existing cash ISA to another cash ISA with a different provider or an existing stocks and shares ISA to another stocks and shares ISA with a different provider. You can also transfer a cash ISA to a stocks and shares ISA or vice versa. If you want to transfer money you’ve invested in an ISA this current year, you must transfer all of it. For previous years, you can choose to transfer all or part of your savings.
- From April 2017, the new Lifetime ISA will be put in place, as announced by the Chancellor in the budget. 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’ll pay a 5% 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 account opening.
To make sure you are using your ISA Allowance effectively both in this tax year and next, ask us for advice. The earlier you start using your allowance in the tax year the better, so don’t leave it until 4th April this time. Speak to us in April and start planning how to maximise your tax efficiencies for the 2016/17 tax year.
We can provide independent advice on the whole ISA market as it is about working out what is best for you. Everyone’s needs are different; you must find the right combination. Therefore, we always recommend you seek independent financial advice.
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.