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Jul 9 2019 | Iain McCulloch

Don’t delay using your ISA allowance – you could be missing out!

In April this year, HMRC released the latest statistics on Individual Savings Account (ISA) subscriptions. It showed that 2017-18 continued the downward trend of Adult ISA subscription take up, with just 10.8 million subscribed to compared to 11.1 million in 2016-17. That said, the amounts subscribed to Adult ISAs in 2017-18 was £69 billion, £7.8 billion more than 2016-17.

Are you using your ISA allowance?

Here’s five reasons why you should be using it now:

1. If you don’t use it, you lose it – If you don’t use your ISA allowance in a given tax year, it’s gone. Why wait until the year end to invest? Get the tax benefits now at the beginning of the tax year.

2. Interest from ISAs doesn’t impact your personal savings allowance (PSA) – If you’re a basic-rate tax payer, you can earn up to £1,000 in interest a year tax-free. If you’re a higher-rate tax payer, that reduces to £500. The good news is that any interest earned within an ISA doesn’t count towards this allowance.

3. The tax-free allowance makes a big difference – Any Capital Gains you make in excess of £11,700 a year are subject to Capital Gains Tax (CGT). This is 20% for higher-rate tax payers and 10% if you’re a basic-rate tax payer. Returns on a Stocks and Shares ISA are protected from Capital Gains Tax (CGT), and it makes a big difference.

For example, if you are a higher rate tax payer and you invest £20,000 at the start of each tax year for the next 10 years and achieve an average return of 5%, you will make a gain of £64,136. If you then withdraw that money in one lump-sum, say for building work or buying a new property, you would pay £10,487 in CGT if you’re a higher rate tax payer. An ISA wrapper protects you from that.

4. Sheltering your portfolio from dividend tax – Last year, the dividend tax allowance reduced from £5,000 to £2,000 a year. Even if your portfolio isn’t yet yielding £2,000 in dividends, you can protect yourself from future tax by ensuring those investments are held within an ISA tax wrapper now. If you’re a business owner and you pay yourself dividends, this becomes even more important as it all counts towards the same dividend tax allowance.

5. Don’t forget about the Junior ISA – You can also shelter up to £4,368 in a Junior ISA this tax year. You will never be able to access these savings, and the child can only access it at the age of 18 years old, but it’s a good way of gifting money and not paying any tax on the returns.

If you have any further questions about ISAs and investments, planning for retirement or managing your wealth and assets, our team of experienced independent financial advisers are here to help. Call us on 023 8092 0128 or contact us here.