Use it or Lose it
ISA season is upon us once more and you have until 5th April 2014 to make use of your allowances for this tax year. We all have our individual allowance of £11,520 of which a maximum amount of £5,760 can be invested into a cash ISA. The important thing to note is this allowance will be lost when the new tax year arrives so make use of your allowances sooner rather than later.
What is an ISA and is there any benefit? Individual Savings Accounts were introduced in 1999 and are a legal way of avoiding paying tax. There are 2 forms of ISA available and these are a Cash ISA and the Investment ISA. The cash ISA is tax free and any income or growth is free from all forms of tax. Savings accounts automatically have 20% deducted at source if you are a basic rate taxpayer with further tax to pay if you are in a higher tax bracket, so even a lower rate ISA can provide greater return in real terms than a higher rate savings account.
Investment ISAs allow you to invest money in a range of things, such as shares and investment funds. An investment ISA is paid with a tax credit of 10% with no further liability, meaning growth is free of capital gains tax and income is free of income tax. This benefit means that it is more favourable than investment funds that are out-with an ISA.
Both solutions are favourable for individuals paying tax regardless of what tax band they are in.
It is also important to understand that an ISA isn’t a type of savings account or investment in itself. It’s often described as a wrapper, as it “wraps” around normal types of savings and investments - the only difference being the
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tax efficiency you get by having your money in this special wrapper.
Can I Transfer an ISA? Transferring ISA’s is becoming more popular as savers and investors seek to find value. Care should be taken when transferring ISA’s as there is a special process to follow, do not simply cash in your ISA as you will loose the tax efficiency that you have built up.
ISA Rules at a Glance • Anyone over the age of 16 can save into a cash ISA (you need to be at least 18 to open an investment ISA), providing you live in the UK. Junior ISA’s operate under different guidelines
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You can invest up to £11,520 in ISAs in the 2013-14 tax year (6 April 2013 to 5 April 2014). If you don’t use your ISA allowance, you lose it!
You can transfer your accumulated cash ISA funds into a new cash or investment ISA as you wish (although some providers may only allow you to transfer the full pot).
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You can have more than one cash ISA and more than one investment ISA open at the same time. However, you can only open one cash ISA and one investment ISA per tax year for new money you wish to invest - these needn’t be with the same provider. If you want to transfer that money to another ISA in the same tax year, you would have to transfer the full amount.
Please seek impartial financial advice when considering investing into any investment ISA.
Kindly provided by Darren at CWS To advertise in thewire t. 07720 429 613 e.
the.wire@btinternet.com
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