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Just a few days left to arrange your ISA

There are just a few days left before the 5th April deadline to buy your 2015/16 ISA. 

Whilst George Osborne is introducing a personal savings allowance which allows up to £1,000 a year in interest to be earned on any bank or building society account  for a basic rate tax payer, and up to £500 for any higher rate tax payer, we expect to see more ISAs purchased than ever before; and here are our six reasons why:

Simplicity

ISAs are simple and straightforward to understand. In the 2015/16 tax year the ISA allowance allows you to save or invest (or in any combination of the two) up to £15,240. Once you have invested your money, you can transfer your ISA into different funds or into a different ISA wrapper, you are not stuck with that provider or rate of return. You don’t have to declare the earnings from your ISA on a tax return either. It is that simple and straightforward.

Essential for higher rate tax payers

The new Government savings incentive will allow a basic rate tax payer to earn up to £1,000 a year in interest on any bank or building society account without paying interest. Higher rate tax payers are only allowed to save up to £500 in interest before paying tax, and for those who pay 45% in tax there is no personal allowance at all. For top earners, ISAs remains a  route to tax efficient returns.

Long Term Tax Efficient Financial Planning

ISAs aren’t included in the new personal savings allowance calculation. This means that you can invest or save into an ISA, and year on year you are building significant sums which are protected from paying tax, sums which could one day produce returns which exceed the new savings allowance threshold. It may be that your earnings currently would allow you to benefit from the maximum savings allowance, but increases in income could mean you lose out in future. Money you save now and hold in ISAs will not be affected by a change in circumstances.

Death Benefits for Spouse

Money held in an ISA can now be passed on to your spouse / civil partner on death. However your new personal savings allowance dies with you. So, if an individual is already using their maximum tax free savings allowance, and money is inherited from a spouse’s bank or building society, it will immediately become taxable. Any money inherited in the form of an ISA will remain tax efficient so long as it remains in the ISA.

You can mix it up

Unlike any other type of account, an ISA allows you to move your money between cash and equities within the tax efficient wrapper. This means that you can move your wealth from low risk cash accounts to higher risk investment funds at any point. If you choose to invest in to ISAs as a way of saving for your retirement, this means you can de-risk your portfolio gradually without losing its tax efficient status.

No risk of future tinkering with an existing ISA

If your money is already held in an ISA, the Chancellor can’t suddenly change his mind and take that tax efficient protective wrapper away, irrespective of how much you hold. However, he can reduce or remove the new annual personal allowance any time he chooses.

The new personal allowance is of course good news for all those who benefit. But for the majority of people who aim to hold their money for the long term, using your ISA allowance first and the personal savings allowance to mop up any surplus savings, is likely to be the best way forward. 

Don’t forget that money held in ISAs can be moved into new ISA accounts which pay a better rate of interest or a different level of investment risk. Once you withdraw money from a previous year’s ISA, you can’t replace it. It is important that you follow the correct ISA switching procedure in order to protect its tax efficient status.

If you have significant sums held in ISAs and would like your portfolio reviewing, please get in touch, we’d be happy to help.

Date Issued: 24.03.16

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependent upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.