Skipton Financial Services
Tuesday, April 10, 2018 - 9:52

Six benefits to using your ISA allowance each tax year

1. There is no tax to pay!

Any returns generated from money held within an ISA are free from personal tax – which could make a huge difference to the amount you save over the long-term.

2. The allowance remains at £20,000 for the 2018/19 tax year

Although the allowance hasn’t increased this year, it still enables you to place a generous amount of your money into an ISA. If both you and your partner have an ISA, that’s a huge £40,000 you can use together.  

3. The dividend allowance has been reduced, making it even more beneficial to save into an ISA

The dividend allowance has been reduced from £5,000 to £2,000. This means if the dividend income you receive annually from your non-ISA investments exceeds £2,000, the amount over this will be subject to dividend tax. Depending on whether you are a basic rate, higher rate or an additional rate tax payer, you could face a substantial tax bill at the end of the tax year. 

Let’s say you receive £5,000 in dividend income over 2017/18.  The whole amount during that tax year would have been tax-free as you were within your allowance. Now the allowance has been reduced, if you receive the same amount of income over 2018/19 and you are a higher rate tax payer, you would be £975 worse off than you were last year.

This is where the option to move money into your stocks and shares ISA may be hugely beneficial and rewarding for your finances. By placing £20,000 of your money into an ISA, you may be able to reduce any dividend tax.

4. There are various types of ISAs

Your allowance can be used across a range of different ISA options, including a cash ISA, stocks and shares ISA and LISA (Lifetime ISA).  You are able to use each one once as long as you don’t exceed your overall annual allowance.

5. You can inherit your spouse’s allowance

A simplified and easier process has been adopted for when a spouse passes away – the Inheritable ISA Allowance also known as an Additional Permitted Subscription. This is where the full ISA allowance can be passed onto your spouse and wouldn’t contribute to your own ISA allowance, meaning you would still have your £20,000 allowance in addition.

6. Your allowance is transferrable

Each tax year you can move your money from a cash ISA to a stocks and shares ISA, and vice versa – as many times as you wish. Therefore, you don’t have to keep your money in the same place.

How can we help you make the most of your ISA allowance?

Through a personalised, face-to-face financial review, we’ll look at ways you could maximise the tax-efficiency of your savings and investments, which includes discussing stocks and shares ISAs.  

We can help you take advantage of the tax-efficient opportunities available to you – which could make a positive difference to your financial future.

For more information on how we can help you further, or if you would like to know more about stocks and shares ISAs, call us today on the number at the bottom.

By speaking to us now, we can talk you through the options that are available to you and the process of making sure you choose the right one for you.

Stock market-based investments are not like building society savings accounts as your capital is at risk and you may get back less than you invested. The value of your investments and any income from them may fall as well as rise. The tax treatment of your investments depends on your individual circumstances and may change in the future.

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