Each tax year, we are each given an annual individual savings account (ISA) allowance. The ISA limit for 2016/2017 is £15,240, rising to £20,000 in 2017/2018.
Anyone wishing to utilise their allowance should do so before the deadline of midnight on Wednesday 5th April 2017 which marks the end of the 2016/2017 tax year.
It is a use it or lose it allowance – which means if you don’t use all or part of it it can’t be carried over to the next tax year – once it’s gone, it’s gone.
What is an ISA?
An ISA is a tax-efficient investment wrapper in which you can hold a range of investments, including bonds, equities, property, multi-asset funds and even cash, giving you control over where your money is invested tax-efficiently.
Sheltering your money from Tax
ISAs are becoming an integral part of financial planning. However, it is important to remember that an ISA is just a way of sheltering your money from tax – it’s not an investment in its own right.
ISAs offer a unique range of benefits, as there is no Income Tax on interest payments (which are made by bond funds) or dividends (which are paid by equity
funds), and you don’t lock your money away, so you can still access it whenever you need to.
Simplifying your financial administration
You don’t have to declare any investments held in ISAs on your tax return. This may not seem like much, but if you have to fle an annual tax return, you’ll know that any way of simplifying your financial administration can be very helpful.
If you feel that your existing ISA provider is no longer appropriate for your needs or you are looking to consolidate your investments under one roof, with an ISA you are free to transfer your investment between providers to suit your individual needs. Please note: your current provider may apply a charge when you transfer your investment. While your investment is being transferred, it may be out of the market for a short period of time and may not lose or gain in value.
Withdrawals from an ISA are tax-efficient
ISAs can give you control over your retirement income, as you can take as much money out as you like, whenever you want. Savings in an ISA and withdrawals from an ISA are tax-free. If you are a pension saver, you can generally also take out as much money as you like, whenever you want, from age 55. However, at present only up to 25% of the pension can be withdrawn tax-efficiently, with withdrawals taxed at the applicable marginal rate of Income Tax.
Separately, a test against the Lifetime Allowance may also be applied, which could result in additional tax becoming payable.
Choosing between a Cash ISA or an investment ISA such as the Stocks and Shares ISA will depend on the level of risk you are comfortable taking with your money, as well as factors such as how soon you will need to access your money. If you require individual expert professional advice to beat the ISA deadline on 5 April, please contact us to review the most appropriate options for your particular situation.