ISAs – It’s That Time of Year Again.
The 2014/15 tax year ends on 5 April so it’s the perfect time to make sure you take advantage of the tax incentives available to you and don’t pay unnecessary tax. You only have one ISA allowance in each tax year. You cannot carry your allowance into the next tax year so if you don’t use it by 5 April you will lose it.
Although you can use your ISA allowance at any time during the tax year, the deadline of 5 April adds an extra focus. Because of their tax benefits ISAs are perhaps the obvious choice for investing tax efficiently but there are other steps you can take too. Here’s a quick reminder to help you make sure you don’t miss out.
Use your annual ISA allowanceYou can invest up to £15,000 in the 2014/15 tax year and all future investment growth will be free from personal income tax and capital gains tax. There are two types of ISA – the cash ISA and the stocks and – shares ISA. You can split your £15,000 allowance between the two types in any way you wish.
Check your existing Cash ISA holdingsIt’s important not to forget about your existing ISAs. If you have cash ISAs you should make sure you are getting the best available rates, but make sure you check for any penalties before you move. If you don’t need to keep all your ISA investments in cash, you can move some or all of your existing cash ISA holdings to a stocks-and-shares ISA without affecting your current tax year’s ISA allowance – this year’s £15,000 allowance is a limit on new investment only.
Stocks-and-shares ISAs are not a good home for money you may need in the short-term. You must be prepared to leave your money in a stocks-and-shares ISA for at least five years and accept the risk that you may get back less than you put in.
Consider Junior ISAs (JISA)Parents or guardians can open a JISA for their children. The JISA has all the tax benefits and investment choices of the normal ISA – all income and capital growth is free from personal income tax and capital gains tax.
The annual investment limit is £4,000 and you can split this between a cash JISA and stocks-and-shares JISA however you wish. Although only parents or guardians can set up a JISA, anyone can pay into it. You have until the 5 April to take advantage of this year’s JISA allowance.
Maximise your pension contributionsAs well as making the most of your ISA allowance there are other tax-saving steps you can take such as paying a pension contribution. You can save as much as you like into as many registered pension schemes as you like and get tax relief on those contributions of up to 100% of your earnings (salary and other earned income) each year, provided you pay the contribution before age 75.
Do this by the 5 April and, within certain limits, you will receive basic rate tax relief on your contribution. If you are eligible for higher-rate tax relief you can claim this through your tax return. The annual allowance for tax relief in 2014/15 is £40,000. Although this is lower than previous years it is still large enough for most people.
Don’t forget IHT and Capital Gains TaxYou can give away up to £3,000 in this tax year and it will fall outside your estate for inheritance tax purposes.
You can also make gains of up to £11,000 without incurring capital gains tax. So if you are thinking of selling some assets there may be a benefit in doing so by 5 April.
Act now!Regardless of how or where you decide to invest your money, to take advantage of any tax incentives available in this tax year you must invest before 5 April. For example, if you haven’t used this year’s ISA allowance by 5 April you have lost it forever. So start your research now and make sure you do not miss out.
Please do not hesitate to contact us if you would like expert help to make sure you do not pay unnecessary tax.
Tax planning is not regulated by the Financial Conduct Authority.
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Tax treatment varies according to individual circumstances and is subject to change.
The value of investments can fall as well as rise and you can get back less than you invested.
Investors do not pay any personal tax on income or gains, but ISAs do pay tax on income from stocks and shares within the funds.