There are only a few weeks left to use this year’s £15,240 personal ISA limit. Or lose it forever. The tax year ends on Wednesday 5 April 2017, when the opportunity to put this sum into a tax-free account will disappear. You can’t carry it over to the next financial year.
It’s worth using your allowance despite low interest rates. You can save any combination of cash savings and stocks and shares in a tax-free wrapper up to the value of £15,240.
If you’re reluctant to take a risk on the stock market and still a taxpayer, you could be better off with a savings account thanks to the new Personal Savings Allowance. Although you won’t be charged tax on your ISA interest, you may face penalties on withdrawal.
The first £1,000 of interest on cash savings is now free of tax for basic rate taxpayers. A basic rate taxpayer could have £100,000 in the bank earning 1% before they started to pay tax on their interest. Even 40% taxpayers, who get a reduced £500 savings limit, could have £50,000 worth of savings.
However, the beauty of ISAs are that you can more easily and flexibly dip your toes into the stock market too. Stocks and shares ISAs should be viewed as part of your long-term financial plan, such as building a pension pot. This allows time to overcome short-term market volatility. If you’re saving for a long-term goal, then stocks and shares make more sense than cash.
But as with those saving cash, it’s important to keep a cool head ahead of the ISA deadline.
Even if time is of the essence, don’t rush into any investment decisions. Take the time to shop around to find an ISA offering a good deal within the parameters of your requirements. Think about how you want to access your money and whether you’re prepared to shoulder withdrawal charges if you need it earlier.
Your financial adviser can help you to open a cash ISA before the 5 April deadline and decide which stocks and shares to shift to afterwards. Take the time to define your investment aspirations and find a product that not only works for you, but aligns with your beliefs and values. However, don’t leave your investment languishing as cash for too long – the longer it does the more potential returns it’s missing out on.
Remember, £15,240 is the individual limit. You and your spouse can amalgamate your savings for even greater returns.
Finally, why not take advantage of next year’s ISA allowance early? Many providers will allow you to top up this year’s ISA and also set up next year’s, so you’ll start earning interest straight away from the beginning of the next tax year. Next year’s allowance has been set at £20,000, which means even greater tax-free savings opportunities.
The value of investments can go down as well as up and you may not get back the amount invested. Levels and basis of reliefs from taxation are subject to change. The Financial Conduct Authority does not regulate will writing or tax advice.