This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult an independent financial adviser.
As you likely will have heard, the end of the UK tax year is looming in April. This has important implications for your pension, taxes and individual savings accounts (ISAs). In this short guide, our financial advice team here at Cedar House wanted to help ensure you get the most out of your ISAs before the April deadline.
We hope you find this content informative, and if you’d like to discuss your own financial plan with a financial planner here at Cedar House, then please arrange a free consultation via:
020 8366 4400 or enquiries@cedarhfs.co.uk
ISAs & why the April deadline matters
The 5th of April represents the cut-off point for your annual ISA allowance. In 2019-20, you are allowed to save up to £20,000 per tax year into your ISA(s). Once the tax year ends, the annual ISA allowance renews and any unused allowances from previous years can’t be carried forward.
Given the tax benefits on offer through an ISA, it’s a good idea to consult your financial adviser before April to ensure you make the most of them. Remember, any interest earned on savings within an ISA is completely tax-free, and does not count towards your annual, tax-free personal savings allowance (i.e. up to £1,000). Moreover, any capital gains or dividend income from your ISA investments are not subject to tax either.
In theory, leveraging your annual ISA allowance could result in a large, tax-efficient portfolio. Suppose you save £20,000 every year over ten years, and the rules governing ISAs remain the same. This could lead to £200,000 of savings and investments within your ISAs, allowing you to grow your wealth and draw an income completely free of tax.
Which ISAs should I be concerned with?
There are many different types of ISA, which can make it difficult to know which one(s) you should commit your savings to. Here, once again it’s often a good idea to seek professional financial advice to gain a clearer picture of your options. To briefly summarise the different types of ISA on offer, however:
- Cash ISA. Similar to a regular savings account, but with all of the aforementioned tax benefits. This allows you to make easy, quick withdrawals and so can serve well as a tax-efficient emergency fund.
- Stocks & Shares ISA. A means for investing in different investment opportunities and asset classes including equities and bonds. Your money is usually locked away for at least a few years, and your capital is at risk (should your investments underperform). However, this ISA does present greater growth opportunities compared to the Cash ISA.
- Lifetime ISA. This ISA is designed to help people save up for a first home, or for their future retirement. A number of distinct, important rules govern how this ISA works, but the key benefit is that you can save up to £4,000 per year into a Lifetime ISA. For every £4 you commit, moreover, the government will “top-up” your savings by £1 up to a total of £33,000 throughout your lifetime.
- Junior ISA. Looking to teach your child about the importance of saving/investing, and help provide towards their future? This ISA allows your child to save up to £4,368 per tax year, tax-free, up to the age of 18 (when they can start withdrawing the money).
- Innovative Finance ISA. Got a higher appetite for investment risk and like the idea of generating returns through business lending? This ISA allows you to engage in business lending, crowdfunding and peer-to-peer (P2P) lending in a tax-efficient way. The returns on offer are typically greater, but the level of risk is also usually higher.
- Help To Buy ISA. No longer on offer to the wider public since November 2019, many people still hold this ISA and will be allowed to continue saving up to £200 per month into one until November 2029. Similar to the Lifetime ISA, the government will “top-up” your deposit on a home purchase by 25% (assuming you follow the rules). Here, you might want to speak to a financial adviser about whether it’s worth continuing your Help To Buy ISA, whether there is a better deal on offer elsewhere or if you might benefit from moving the funds to a Lifetime ISA.
Don’t forget your other allowances
As important as your ISA is in light of the end of tax year, it’s important to note that this isn’t the only area of your financial plan which is likely to be affected. Your pension, for instance, is also important to consider with your financial adviser. Remember, in 2019-20 you are allowed to put up to £40,000 into your pension per tax year (or up to 100% of your salary; whichever is higher). Once the tax year ends, you start to lose the opportunity to access unused allowances from the previous tax years. At the moment, you can carry forward any unused allowances over the previous three tax years, so there is a bit more flexibility compares to your ISA allowance.
Invitation
If you would like to discuss your financial plan with a member of our team, then get in touch today to arrange a free consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk.