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Get to know more about what ISAs (Individual Savings Account) can offer when it comes to saving - 05/02/2020

With the rate of inflation higher than the interest rate offered on cash savings, prices are increasing faster than money in the bank is growing. This means that the real value of your savings falls over time. There are many ways to combat the effect of inflation and one is simply ensuring that you pay less tax on your investment and savings returns. ISAs should be considered an essential tool to utilise in any portfolio. Even if the benefits are not immediately obvious, investing via an ISA costs nothing extra and yet the benefits over the long-term can be substantial.

Are you making the most of your ISA allowance?

ISAs are a tax-efficient way to save and it is always worth using your full allowance when possible. ISAs are simply ‘wrappers’ applied to your savings or investments that mean returns will be free from Income Tax and Capital Gains Tax.

When is the ISA deadline for the current tax year?

The ISA deadline for this tax year is April 5th, 2020. And you can use your next tax year ISA allowance as early as the 6th April 2020.

How much can you put in an ISA?

Each tax year, you get an ISA allowance which sets the maximum you can save within the tax-free wrapper from April to April. For this and the next tax year this is £20,000.

We would recommend that you don’t leave your end of year tax planning until the last minute - consider taking advantage of next year’s allowances at the beginning, rather than the end of the tax year.

What types of ISAs are there?

There are five types of ISAs available: Cash ISAs, Stocks and Shares ISA, Junior ISAs, Lifetime ISAs and Innovative Finance ISAs. While a Cash ISA is effectively a tax-sheltered deposit account (or structured deposit), a Stocks and Shares ISA is a tax shelter for many different types of investments from Unit Trusts to shares and structured investments.

How can I make the most out of the ISA tax allowance?

You must save or invest by 5 April – the end of the tax year – for it to count towards the ISA limit of that year. Crucially, any unused allowance doesn't roll over. If you don't use it, you lose it. You'll get a new allowance at the start of the next tax year. To make sure you are staying as tax efficient as possible, it makes sense to use as much of your allowance as you can each year.

How can I use the ISA limit?

You are free to split the ISA allowance across different types of ISAs, but you can only add money to one ISA of each type in a tax year as long as your total contributions do not exceed the £20,000 ISA allowance. Alternatively, you may want to use your full allowance on one ISA.

How could a structured investment benefit from my ISA allowance?

Any gains from structured investments normally fall under Capital Gains Tax rules and the gains on a £20,000 investment are unlikely, in isolation to ever exceed your annual capital gains tax allowance. On the surface therefore, an ISA may not offer obvious benefits in the short-term. However, over the long-term the benefits of having capital sheltered in an ISA increase as the portfolio grows and at some point in the future it can be a very tax efficient way of producing income and gains which do not need to be disclosed on a tax return.

Speak to an independent financial adviser about your tax options...

Wherever possible, utilising your ISA allowance is something that should be done early in the tax year. If you would like to see how we can help structure your finances and make the most of the available tax allowances, or if you are unsure about the suitability of any investments, you can contact us to discuss this with an independent financial adviser.

Lowes Consultants are experienced at helping clients make the most of tax rules and allowances, structuring their finances tax-efficiently to ensure they don’t pay more tax than is necessary.

To arrange a free, initial consultation with a Lowes Consultant Call: 0191 281 8811

Tax rates and allowances are subject to change. Financial Conduct Authority does not regulate on tax planning
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