News – March 2011
Are you missing out on tax free savings by not taking advantage of your ISA allowance?
As we all know, the recent financial crisis and recession have been a challenge for investors. Anyone looking at their returns over the last decade may even question the ability of markets to help them meet their financial goals.
However, as shown by the strong rally in share prices since the lows of March 2009, this low is also a huge opportunity financially. The past has shown us now is the time to put a long-term investment strategy in place.
Because of this, we believe it's important that investors look beyond the current economic uncertainty, and continue to utilise their ISA allowance to its full potential.
What is an ISA?
An ISA can be invested into in a variety of ways, as laid out below. These consist of a combination of cash and stocks and shares.
- A cash ISA is just like a normal savings account - the only difference is that the interest isn't taxed. Normally, basic rate taxpayers have to hand over 20% of their savings interest to the taxman, and for higher rate taxpayers this increases to 40%. However, if your money was in an ISA, you would keep all of that interest.
- The allowance can also be used on investment vehicles like unit or investment trusts. These are pooled investments where a selection of shares are picked based on a particular criterion, and the value of the investment depends on the performance of those shares. Placing these investments inside an ISA wrapper provides two tax advantages. Any profits made from share prices increasing aren't eligible for capital gains tax, and all the tax on bonds are able to be reclaimed.
How much can I invest, and how?
Every tax year, everyone over the age of 16 has an ISA allowance which sets the maximum that can be saved within a tax-free wrapper each year.
The limit for 2010/2011 is £10,200. For couples, that's £20,400 of savings – all protected from the taxman. Until the 5th April 2011 you can take advantage of this, and the earlier you start to invest in an ISA, the sooner your tax efficient investment can begin working for you.
There are a variety of ways in which you can save:
- 50% cash, 50% shares: You can put £5,100 into a cash ISA, leaving £5,100 worth of shares.
- 100% shares: You can invest in £10,200 worth of shares, and no cash.
- Mix and match: An amount under £5,100 can be saved in cash, then the rest of your £10,200 allowance put in a shares ISA. For example, saving £2,000 in a cash ISA leaves £8,200 left to invest in shares.
After the 6th April 2011, the ISA limits are set to increase to £10,680.00 per person – an additional £480. That's £21,360 for a couple, with totally tax free interest.
What should I do now?
If you've not yet invested in an ISA this year, it's not too late. What's most important is that you fully utilise your allowance where possible, as once the ISA deadline passes you lose any unused allowance forever. The deadline for this year is the 5th April 2011, so now is the time to get advice on the best ISA plan for you.
Ae Financial Services Ltd are leading Independent Financial Advisers specialising in the personal financial planning market. We have exceptional experience in the financial market, and can provide entirely unbiased investment advice as we are totally independent of any fund managers or banks.
For more advice on ISA allowances, and to find out how we can help you, call Ae Financial Services on 02380 558300 or email info@aeins.co.uk.