An ISA stands for Investment Savings Account. It allows you the option to put your money into investments such as individual stocks and shares, investment trusts, funds or bonds, and any growth received is free of income tax and capital gains tax – so you get to keep more of your returns which helps to grow your wealth faster.
Whether you already have an ISA or are thinking about the most tax efficient way to save your money, it’s important to understand how to maximise your ISA allowance BEFORE 5 April – which is the current tax year.
Maximising your ISA
Unlike traditional savings accounts or general investments which normally allow you to deposit as much as you want to, the government sets a limit on the amount of money (known as an ISA allowance) you can put into ISAs and this may change each year. Currently, the total amount you can invest in an ISA in the current tax year is £20,000.
You don’t have to invest the full £20,000 but making the most of your annual personal allowance allows you to shelter your savings or investments completely from income tax and capital gains tax.
Use your allowance by 5th April 2021 or lose it
Everyone has the same ISA allowance, each tax year, which runs from the 6th April to the 5th April the following year, and when each new tax year starts you will have a brand-new ISA allowance. This can be cash or stocks & shares ISA, or a mixture of both.
If you don’t use all your ISA allowance before the end of the tax year it will be gone for good. You cannot carry forward part of your ISA allowance from one year to the next. So it makes sense to put as much as you can before the 5th April 2021.
Accessing your ISA
You can access your money at any stage without fear of having to pay income or capital gains tax, unlike other less tax efficient investments. You can also withdraw and then replace cash, in the same tax year without it affecting your annual allowance of £20,000.
Couples have their own allowance
Remember that the £20,000 annual ISA limit is an individual allowance which means couples that both use their full allowance can, between them, put away up to £40,000 per year. Spouses and civil partners can transfer assets between themselves so, even if one party does not have the capacity to fully use their allowance, a spouse or civil partner can transfer the necessary funds to them to enable them to also maximise their ISA savings.
The deadline of 5 April is closer than you think, so now is the perfect time to think about topping up your ISA to ensure you make the most of your personal tax allowance for the current financial year.
The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested. An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.
The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.