How to put more into your ISA

An ISA – an Individual Savings Account can be the basis of most people’s investment plans. ISAs are tax efficient, and you pay no tax on the interest or profits made by the money you put in them, or on what you take out when the time comes to cash in.

The tax advantages are so rewarding, the government sets strict limits on the amount you can invest in ISAs each cash year. This is capped at £20,000 in the current tax year.

But there may be some ways to use ISAs to shield much more of your wealth from the taxman, and so make it grow faster as a result.

Why ISAs are a popular choice

In the current low interest climate, many of us are finding it hard to see the point of saving.  Most conventional savings accounts provide so little interest that they cannot keep pace with inflation, meaning they lose money in real terms.

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What’s more, they come in under the Personal Savings Allowance threshold, meaning that there is no tax to pay. So, the main reason for saving with an ISA is removed. Whether your money is in a conventional savings account or an ISA returns are so small there may be no tax to pay.

But although ISAs may be called savings accounts, they actually provide a means of investing. Cash ISAs may not look very rewarding these days, but Stocks and Shares ISAs, which invest your money rather than simply pay interest on it, are not subject to the same restrictions. By investing in equities, and protecting that investment with an ISA, you can profit from the stock market free of any tax.

There is a downside – there is no guarantee of profits, and as recent events on the markets have shown investments can go down as well as up.

What’s more, you don’t have to be an investment expert to capitalise on a Stocks and Shares ISA. Let our expert team at Continuum do that for you.

So how much can you really invest?

The basic individual ISA allowance is £20,000 but remember that you and your partner both have an allowance, giving you £40,000 to invest each year.

If you have children, they will have an allowance too. A Junior ISA allows you to save up to £9,000 into a tax-free account on behalf of your children, who can access the money when they reach the age of 18. They will have an adult ISA allowance from the age of 16.

So, when a child turns 16 they can open a normal Cash ISA in addition to their existing Junior ISA although they cannot open an adult Stocks & Shares ISA or a Lifetime ISA until they are 18.( You can put in up to £4,000 each year into a Lifetime ISA, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. There are limitations to when you can withdraw cash and charges are incurred for unauthorised withdrawals)

This means that a family of two adults and two children with all their combined allowances, will be able to save or invest as much as £58,000 free from taxation in 2020-21. If the children are both between the ages of 16 and 18, the family could in theory put away up to £98,000.

An extra for widows and widowers

Bereaved spouses can save potentially unlimited amounts into their ISA in a single tax year, by using an allowance which is often forgotten. The Additional Permitted Subscription (APS) ISA allows a surviving spouse to put all of their partner’s ISA savings into their own tax-free wrapper in one go, even if it exceeds the £20,000 annual allowance cap.

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Finding out more

Anything to do with tax can become complicated, and it is important to get expert advice to make the most of your ISA allowance.

At Continuum, we are ready to help. A call to us today could help you find ways to put more into your ISA – and to look at ways to get more out.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

The Financial Conduct Authority does not regulate taxation advice.

By incurring a Lifetime ISA Government withdrawal charge you may get back less than you paid in.

By saving in a Lifetime ISA instead of a qualifying pension scheme you could lose contributions by your employer, if any.

Saving in a Lifetime ISA may affect your entitlement to current and future means tested benefits


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