ISA season has come round again. The month before the end of the tax year is a key time for looking at ISAs, and how they can make savings and investments more rewarding.
At Continuum we are looking at why, how you could potentially save thousands in tax and provide a firmer foundation for your financial future – and why you need to act now.
What exactly is an ISA?
Individual Savings Accounts, or ISAs have become hugely popular for one simple reason. They shield you from income tax, capital gains tax and dividend tax charges.
You keep all the returns your money earns, and the taxman cannot take a share. This makes ISAs potentially more rewarding than conventional saving schemes or investment funds, and a sound basis for wealth creation plans.
Outside an ISA, you could currently be paying 20%, 40% or even more in tax on the money you put away, depending on your tax bracket. Inside an ISA the taxman can’t touch your savings or investments, even when the time comes to cash them in.
There are five main types of ISA, which provide homes for different types of savings or investment
- Cash ISAs – keep your contributions as cash and can offer a guaranteed return.
- Stocks and Shares ISAs – offer investment in the stock market. Like any other investment there are no guaranteed returns, but there is the potential for higher growth than a Cash ISA can offer.
- Innovative FInance ISAs – these focus on peer-to-peer lending and have found limited popularity.
- Lifetime ISAs – these can provide additional returns in the form of a guaranteed bonus each year but can only be used to fund the purchase of a first home, or to boost retirement income.
- Junior ISAs – as the name suggests, these are for under-18s and can be savings or investment based.
Most people can open an ISA, though you usually need to be 18 to open an account for yourself. You also need to be either resident in the UK, or a member of the armed forces, a Crown servant or their spouse or civil partner if you live abroad. ISAs can’t be held as joint accounts.
But you need to understand the ISA allowance.
The ISA Allowance
The tax advantages of ISAs make them so attractive, there are limits on how much you can invest. Under current rules, all adults get an annual ISA allowance of £20,000. This sets a strict limit on how much you can deposit into ISA accounts during each tax year. You can invest in any combination of ISA as long as your contribution does not exceed the £20,000 allowance. However, a Lifetime ISA has a maximum contribution of £4,000 and you have to be between the ages of 18-40.
The advantages of ISA savings and investment are so attractive, it’s wise to make the full use of your ISA allowance each year. Your ISA allowance is valuable – as long as your circumstances allow, it makes sense to use it to the full to maximise your protection from the taxman.
There is no rollover of allowance, and once a tax year has passed, that year’s allowance is lost. This is the reason for the seasonal boost in ISA investment. You need to make the most of their ISA allowance before the April 6 deadline, when the tax year ends, and this year’s annual allowance ends with it.
Planning your ISA strategy
Making any ISA saving or investment now might be better than letting your 2024/25 tax year allowance go to waste. Once it is inside an ISA ‘wrapper’ you can move funds between ISAs and keep its tax-efficient status.
But you need to use your ISA allowance carefully, where it can potentially provide maximum returns, and suitably meet your financial objectives.
There are many different ISAs on the market. Some are as easy to use as a conventional savings account, letting you make regular monthly contributions. Some Cash ISAs offer guaranteed returns. And there are Stocks and Shares ISAs for all types of investments, from blue-chip holdings that offer safe and steady income to speculative investment which could offer potentially high returns in exchange for higher risk.
To understand the kind of ISA which might be appropriate for you, and to use your 2024/25 allowance before you lose it for good, you need to act fast. That can be easier with some expert advice.
Don’t miss out on the ISA season. Call us for that expert advice today.
https://www.telegraph.co.uk/money/investing/isas/isa-allowance-guide
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 Financial Conduct Authority does not regulate taxation advice or deposit accounts
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
