Life in lockdown may have left you with some extra money, maybe you’re saving on the commute, socialising, holiday costs or kids clubs, if so, why not take the opportunity to make some tax-efficient savings and investments with a portion of your lockdown savings?
The end of the tax year (5 April) will soon be upon us, so if you would like to use some or all of this year’s ISA or JISA allowances, don’t leave it too late or you’ll run the risk of missing out. You may recall, you can’t carry over any unused allowance to the next tax year, so if you have cash you won’t need access to in the short term, now’s the time to invest it.
Your Individual Savings Account (ISA) Allowance
Standing at a generous £20,000 for the 2020/21 tax year, you can choose to put all the annual ISA allowance into a Cash ISA, or invest the whole amount into a Stocks and Shares ISA or Innovative Finance ISA. You can also adopt a mix and match approach, putting some into Cash, some into Stocks and Shares and the rest into Innovative Finance if you wish. However, the combined amount must not exceed your annual ISA allowance of £20,000. With pension contributions subject to annual and lifetime limits, ISAs are a very useful tool in topping up retirement income. There is no Income Tax or CGT payable on ISA proceeds.
In certain circumstances, investors can use existing holdings to open or top up their ISAs, this arrangement is known as a Bed & ISA. This is a way of transferring assets held outside an ISA into an ISA so that future investment income and growth are sheltered from tax. The investments are sold, cash is transferred into the ISA and the investments are repurchased. Charges apply and you could end up with a CGT liability if the gain you make on selling the asset, together with any other taxable gains you make within the tax year, exceeds the annual CGT allowance.
A Lifetime ISAis another option available to open for those aged 18 or over, but under 40, who want to buy their first home or save for later life. You can put in up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. This contribution counts toward your annual ISA limit of £20,000. Conditions apply.
Junior Individual Savings Account (JISA) contributions
Why not take the time to give your children’s savings a boost? JISAs are a tax-efficient way to build up savings for your children (and grandchildren) and can be opened for any child under 18, living in the UK. The money can be held in Cash and/or invested in Stocks and Shares. They work in exactly the same way as your own ISA; however, the maximum investment is £9,000 per child for the 2020/21 tax year.
A great opportunity
With interest rates currently so low, it’s more important than ever to ensure your savings are working hard for you. The ability to save up to £20,000 tax-free is one way of achieving a higher return, especially for those in higher or additional rate tax bands, who don’t benefit fully or at all from the Personal Savings Allowance.
Talk to your adviser
For advice on using this tax years ISA allowance before it’s too late, get in touch with your adviser, who will take the time to understand your objectives and advise you on the course of action most appropriate for your circumstances. Whether you’re in a position to use some or all of your allowance, we can help; rest assured small, regular contributions soon add up.
This year, 5 April is Easter Monday, so don’t wait until the last minute.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
Tax rates are based on current legislation for the 2020/21 tax year, which is subject to change
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