With the end of the tax year coming up, you are probably hearing a lot about ISAs. Here’s a quick and easy breakdown looking at the key points…
What Is An ISA?
An Individual Savings Account (ISA) is a tax efficient way to save and invest.
How Much Can I Put In An ISA?
The maximum allowance you can put into an ISA for the 2016/17 tax year is £15,240.
Any unused allowance can’t be rolled over to the next year. However, for 2017/18, the allowance is set to be £20,000
When Does The Tax Year End?
April 5. If you still have some allowance left in your ISA, you may want to put in as much as you can before that date.
Why Is The End Of The Tax Year So Important In Relation To An ISA?
If the tax year ends and you haven’t used the full allowance, you can’t roll over the unused allowance to the next tax year.
Therefore, it could be a good strategy to use the maximum allowance before April 5 each year, in order to maximise your return potential.
Over time, if you are putting in the maximum amount and compounding the interest, you could eventually have a significant amount of savings.
How Does An ISA Work?
With a Cash ISA, you’ll be able to save without paying tax on any interest.
If you are concerned about access to your money, consider a Flexible ISA. This will allow you to take cash out and then put it back in during the same tax year, without reducing your current year’s savings allowance.
Another option is a Stocks & Shares ISA, with this type of ISA you won’t pay tax on any income other than dividends, and you’ll benefit from no capital gains tax from your investments. You may also benefit from greater returns than from a cash ISA
Are Cash ISAs Still Worth It With Interest Rates So Low?
With Cash ISAs having an average return of 1.53% during the 2014/15 tax year, you could be questioning if this type of saving is worth it. With inflation currently at 2.3% the money in these accounts is losing value.
How Does A Stocks & Shares ISA Compare To A Cash ISA?
It could be an idea to invest in a Stocks & Shares ISA if you are investing for a longer term aspiration. This would give you the time to potentially benefit from greater returns while managing the level of risk that suits you.
Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time.