Tip – as the tax year end approaches, make sure you have used all of your allowances
There are allowances each year that can reduce tax, receive tax relief and/or provide tax free growth. These need to be used up before the tax year end (5th April each year) and if they aren’t, they may be lost. Tax years run from 6th April to 5th April. In a series of blogs, I will look at the various allowances for Pensions, ISAs, Capital Gains Tax, gifting annual exemptions, VCTs and EISs. This blog will cover ISAs.
Each year, individuals can pay an allowance into ISAs. For this tax year (2018/19) the maximum that can be paid into a cash ISA/Stocks and Shares ISA or a mix of the two is £20,000. The allowance for 2019/20 will also remain at £20,000. You have to be over 16 to open a Cash ISA and over 18 to have Stocks and Shares. The capital growth, dividends and any withdrawals taken are free from tax. Cash ISAs invest into just that while Stocks and Shares ISAs invest into a variety of “assets” and their value can go down as well as up. To find out more about ISAs, click here.
Help to Buy ISA
There are also Help to Buy ISAs that are for first-time buyers’ use only. In a Help to Buy ISA, you can save £1,200 in the first month of opening, and then £200 per month after that. When you use the funds to buy your first home, the government adds a 25% bonus (up to a maximum of £3,000) onto your savings, helping you to buy the property.
Help to Buy ISAs are a type of cash ISA, which means you can’t usually contribute to both in the same tax year, although some providers may allow you to split your allowance between the two.
The Lifetime ISA (LISA) launched in the current tax year to help save for an individual’s first house or their retirement. You can pay up to £4,000 each tax year into a LISA as a lump sum/multiple lump sums or regular payments. Like the Help to Buy ISA, the government will add a 25% bonus on top. So if you save the full £4,000, you’ll get an additional £1,000. LISAs can be held in Cash or Stocks and Shares. To find out more about the LISA, click here.
Junior ISAs (JISA) – can be opened by or on behalf of anyone under the age of 18. The annual amount that can be invested is £4,260. The JISA allowance for 2019/20 tax year is £4,368 (from 6th April 2019).
If you do not use your ISA allowances before 5th April, they will be lost.
The tax year end is a significant cut off in Financial Planning. These allowances if not used, on the most part will be lost. I work with my clients to ensure utilising these allowance is not left until the very end of the tax year. However, if you haven’t utilised these allowances, you may want to speak to a Financial Adviser pretty sharpish.