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Are you making the most of your ISA allowance?
Counting money in savings account

A guide to making the most out of your ISA allowance

As its been £20,000 since the 2017/18 tax year, the tax-saving potential of Individual Savings Accounts (ISAs) is greater than ever. You can invest up to £20,000 per year in an ISA either with either a single lump or over a period of time, at any point during the tax year. There is no Income Tax on interest or the dividends you receive from investments from your ISAs and any profits generated from your investments are also free from Capital Gains Tax.

Who can open an ISA?

You are eligible to open an ISA if you are:

  • Aged 16 and over for a Cash ISA and aged 18 and over for a Stocks and Shares ISA.
  • A resident in the UK or a crown servant, e.g. diplomatic or overseas civil service, or your spouse or civil partner is, if you don’t live in the UK
  • Investing on behalf of yourself – you can’t hold an ISA with someone else or on behalf of someone else.

What can you invest in?

There are a range of ISAs available, it is important to consider all your options and pick the one that works for you.

Cash ISAs

  • These are designed to hold cash in and cash like products
  • For example a Lifetime ISA

Stocks and Shares ISAs

These can hold different kinds of investment products including:

  • Shares in certain companies
  • Unit trusts and investment funds
  • Corporate bonds
  • Government bonds

We have access to a comprehensive range of investments funds for you to invest in – carefully selected to match your financial goals along with your needs and requirements.

Making withdrawals

You are able to withdraw funds from your ISA at any time without losing any tax benefits you might have. Please note, this excludes Lifetime ISAs.

Alongside the higher annual allowance, you can now also take out cash amounts and put this back in during the same tax year, without reducing your current year’s allowance.

But note, in order to do this your ISA needs to offer this element of flexibility which not all do.

An Example:

Your total allowance is £20,000 and you put £10,000 into an ISA during the 2022/2023 tax year. You then decide to withdraw £3000 during this same tax year.

The amount you can now put in during the same tax year is:

  • £13,000 if your ISA is flexible (the remaining allowance of £10,000 plus the £3000 you withdrew.)
  • £10,000 if your ISA doesn’t have the flexibility (just the remaining allowance left for the tax year)

Transferring your ISA

You are able to transfer your ISA from one provider to another provider whenever you’d like. If you wish to transfer the money you have invested in an ISA during the current year, you must transfer all of it. For money you have invested in previous years, you can choose to transfer it all or just parts of it. Please note that you may not be able to transfer back to your current provider.

What happens to your ISA if you die?

Your ISA ends on the date of your death. There will be no Income Tax or Capital Gains tax to pay up until that date, but most[1] ISA investments will form part of your estate for Inheritance Tax purposes.

Your ISA provider can be instructed to sell the investment and either:

  • Pay the proceeds to the administrator or beneficiary of your estate, or
  • Transfer the investments directly to them

What happens to your spouse or civil partner’s ISA if they die?

  • If your spouse or civil partner died on or after 3rd December 2014, you can inherit their ISA allowance.
  • As well as your normal ISA allowance, you can add a tax-free amount up to the value they held in their ISA when they died.

We can help you achieve a tax-efficient financial plan by providing advice that is based on a thorough understanding of your personal circumstances and goals. Please get in touch to find out more.

This information is based on our current understanding of the rules for the 2022.2023 tax year. The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on the individual circumstances.

The value of your stocks and shares ISA and any income from it may fall as well as rise. You may not get back the amount you originally invested. Contains public sector information licensed under the Open Government Licence v3.0. Although there is no fixed term, you should consider a stocks and shares ISA to be a medium to long-term investment of ideally five years or more.

 

 

[1] AIM ISA investments are now available which may mean the value is outside of your estate for inheritance Tax if held for a minimum of two years.