With only 7 weeks until the end of the tax year, now is the time to consider making good use of your ISA allowance if you have not done so already. Considering ways to shelter your hard earned cash from the tax man should be a top priority, and so there’s no time to waste in making sure you review existing ISAs as well as maximise any New ISA opportunities. This makes the period between now and the end of the tax year an important time for savers and investors, so to help you make the most of your ISA allowance, we’ve put together our Top 10 tips for the 2016 ISA season.
Tip 1 – Don’t miss the ISA deadline
Before you do anything else ISA-related, make sure you know all the relevant deadlines. The main deadline to remember is 5th April since this marks the end of the tax year and is the latest date for using your ISA allowance within the current tax year (2015/16). Remember that you cannot backdate your 2013/14 ISA allowance once this deadline has passed – if you don’t use it, you lose it.
Tip 2 – Don’t miss any other deadlines
Also look out for other deadlines which may apply. Many ISA providers will need your application – and possibly your cleared funds – before this date. Additionally, some ISA plans have an earlier deadline for ISA transfers whilst some offer limited funding and may close early if they become oversubscribed.
Tip 3 – Maximise your ISA allowance
Your total ISA allowance for 2015/16 is £15,240. You can put the entire allowance into an Investment ISA (Stocks & Shares ISA), or the entire allowance into a Cash ISA. If you decide to use some of the allowance in one type of ISA, you can also put any remaining balance into the other type. Also remember that these allowances are per person, so a couple can invest up to £30,480 in total before midnight on 5th April 2016.
Tip 4 – Consider maximising next year’s ISA allowance
Some of the deposit and investment plans available from Fair Investment have an application offer period which ends after the new tax year has begun. Investec for example have Double ISA functionality on all of their current plans which means you can apply for both 2015/16 and 2016/17 tax years through one application. The 2016/17 ISA allowance remains unchanged at £15,240 so you could invest up to £30,480 per individual if you are yet to use your current year allowance. That’s £60,960 per couple, so why not make the most of your ISA and maximise your allowance at the earliest opportunity.
Tip 5 – Understand what your ISA could achieve
When considering why to try and maximise your ISA allowance, apart from sheltering your income or growth from the tax man, it is important to understand how much you could achieve over time. For example, if you had invested the maximum into an Investment ISA since the 1999/2000 tax year, and it had grown at 7% each year, you would now have a lump sum of over £270,000. This is a significant amount, a large part of which would normally have been subject to income tax and/or capital gains tax.
Tip 6 – Think about tax free income
Income is a top priority for many considering the options available with their capital, and so the ability to receive tax free income from ISA investments is an obvious route to consider. For those subject to the minimum 20% income tax rate for example, this takes a headline return of 5% down to 4%, which based on £10,000 over 5 years equates to a difference of nearly £600 in your pocket. For a higher rate taxpayer the situation is even worse, taking your 5% down to 3%, which equates to a difference of nearly £1,200. Please note that the tax efficiency of ISAs is based on your individual circumstances and current tax law which are subject to change in the future.
Tip 7 – Check your existing ISAs
It’s not in your ISA provider’s best interests to offer you the best deal year after year, and don’t rely on them making sure you are aware that your introductory or fixed rate has gone down or that a better account or alternative investment is available because it probably won’t happen, even if it is available from the same provider. Savings rates still remain at record lows and once you’ve deposited your hard earned cash, your ISA provider knows from experience that you’re unlikely to get round to switching providers even if your rate ceases to be competitive. Don’t be that person! It’s down to you to review your existing ISAs, check the rates you are receiving and how your investments have performed, and then compare it with a wide range of other options on offer.
Tip 8 – Take a risk check
Cash ISAs protect your initial capital (and your initial deposit is normally covered by the FSCS) and offer either a fixed or variable return, whilst Investment ISAs put your capital at risk but with the opportunity to achieve higher returns. Generally the greater risk you take with your capital, the higher the potential rewards. With record low interest rates forcing many ISA savers to consider taking on more risk with their capital in the hunt for higher returns, now is also a good time to review the risk versus reward on offer from both your existing ISAs and any new ISAs you are considering.
Tip 9 – Don’t forget the transfer option
Whilst for many years you could only transfer from Cash ISAs to Investment ISAs, this limitation has now been removed. This greater flexibility brings with it a wider range of options to consider since you can now transfer all previous ISA holdings, regardless of whether they are in a Cash ISA or an Investment ISA, into a single ISA. Remember though to never simply take your money out of an Investment ISA as you will lose all of the tax benefits and moving it back into an ISA will count as a new subscription, even if this is done in the same tax year. Please also check with your existing ISA provider whether any charges apply on transferring.
Tip 10 – Maintain your ISA at all costs
Whilst your savings and investments remain in their tax-efficient ISA ‘wrapper’, the benefits become more and more valuable over time as the compound effect of not paying tax each year builds and builds. This is why not only should you try and maximise your ISA allowance each year, but you should also aim to make sure your ISA is the last money you dip into since as soon as you take money out of your ISA, it loses these benefits and starts to become subject to tax.
Review ALL of your options
The range of ISA options to choose from is significant and growing day by day in the run up to 5th April. As the end of the tax year approaches, Cash ISA providers in particular will try and persuade you that their offering is the best destination for your hard-earned money, despite this being a period of record low savings. With an increased allowance, wider investment options and greater transfer flexibility, making sure you do your research and consider ALL of your options very carefully indeed is as important as it’s ever been. Fair Investment provides opportunities across both Cash ISAs and Investment ISAs and our wide range of options is constantly being updated to reflect a selection of the best the market has to offer.
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
Tax treatment of ISAs depends on your individual circumstances and legislation which are subject to change in the future. ISA transfer charges may apply, please check with your provider.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.