Making the most of your ISA allowance

With just over a month until the end of the 2017/18 tax year, it’s time to make the most of your annual ISA allowance, for this year and the next.

ISAs are exempt from income tax and capital gains tax on returns, and you don’t pay any tax on any  money you withdraw. This makes them very attractive, but because of these tax benefits, the Government limits how much money you can put in each tax year.

For 2017/18  and 2018/19 the overall ISA allowance is £20,000.

Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Don’t miss the deadline

You cannot carry your ISA allowance over between tax years, so you must use it before midnight April 5^th each year. But remember, you could put £20,000 in your ISA to use this year’s allowance before the deadline, and another £20,000 on April 6th. You can split your allowance across a Stocks and Shares ISA, Cash ISA, Lifetime ISA and an Innovative Finance ISA.

Here’s our reminder of the various types of ISA:

Cash ISA

A Cash ISA lets you protect your savings from tax and earn a guaranteed return. Current low interest rates make many Cash ISAs look very unrewarding. However, interest rates will not always be this low, and by putting cash into your ISA now it will stay protected for years to come.

However, interest rates will not always be this low, and by putting cash into your ISA now it will stay protected for years to come, but inflation should be still considered.

The rules of the Financial Conduct Authority require us to act in your best interests and we provide “whole of market” advice.

Stocks and Shares ISA

Stocks and Shares ISAs are investments.  Your money is invested on the stock market, and returns are not guaranteed, and you could get back less than you put in if you withdraw at the wrong time. That said, Stocks and Shares ISAs can give you stock market investment and the skills of an experienced fund manager – and keep profits away from the taxman.

Junior ISA

Junior ISAs are a tax-efficient way of providing children with a tax-free lump sum when they reach 18. The annual limit for Junior ISAs for 2018/19 is set to increase from £4,128 to £4,260.

There’s an interesting loophole with Junior ISAs. From the age of 16 to 18 a child can have an adult Cash ISA alongside their Junior ISA. They can still only save £4,260 per tax year in the Junior ISA, but up to £20,000 in an adult Cash ISA as well.

Help to Buy ISA

Help to Buy ISAs were introduced in 2015 to help first-time buyers save the deposit for a mortgage. If you save a minimum of £1,600 you’ll be entitled to an 25% bonus from the government. For 2018/19 you can put in an initial sum of up to £1,200, and up to £200 a month.  Your Help to Buy ISA forms part of your overall £20,000 ISA limit.

Lifetime ISA

Lifetime ISAs allow you to save tax-free for a property deposit and for retirement. They can be opened while you are aged 18 to 39, although you can save until you’re 50. You can put in up to £4,000 each year and the government adds a 25% bonus, up to a maximum of £1,000.

The £4000 Lifetime ISA limit forms part of your overall £20,000 ISA limit.

Innovative Finance ISA

An Innovative Finance ISA (IFISA) lets you combine peer-to-peer lending with ISA tax protection.  You can invest up to your £20,000 ISA allowance, although it may be difficult to do this as a single lump sum.

Remember, many ISAs are managed products, and companies will often charge you a fee for opening and holding a Stocks and Shares ISA. Make sure you know any charges before choosing an ISA product, and if in doubt, seek financial advice first.

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

Tax treatment varies according to individual circumstances and is subject to change.