Make ISAs part of your financial planning

Michelle Nash

Origen Private Client Adviser

An Individual Savings Account (ISA) is one of the most tax efficient ways to save, as your money is free from Income Tax and Capital Gains Tax. An ISA should be an essential part of your financial arrangements; allowing your savings more potential for tax-free income and growth.

Looking for alternatives to cash savings
Even though inflation has fallen to 1.3 %, its lowest level for more than three years, cash investments are struggling to keep pace. Instant access accounts generally offer rates of return below inflation, so savers are losing the purchasing power of their money.

Many longer term cash deposits may have offered higher rates a few years ago but maturing investments are unlikely to benefit from attractive rates in today’s economic conditions.

Our guidance is that you should have three to five months expenditure held as cash for emergency funds before tying cash up for longer periods. However if you have surplus funds available, you should consider using your remaining ISA allowances before the end of the tax year on 5th April.

If you need advice from us, you should contact us as soon as you can so that we have the necessary time to complete our advice recommendations before the end of the tax year.

What ISA options are available?
Every UK resident over 18 has an ISA allowance (age 16 for cash ISAs) for each tax year, which can be invested in a stocks and shares ISA, a cash ISA or an Innovative Finance ISA. In the current tax year, your annual ISA allowance is £20,000. If your spouse or civil partner dies, you can also inherit an additional permitted subscription to your ISA allowance up to the value they held in their ISA at the date of death.

Helping others to save?
If you have used your own allowance, you may wish to make payments into an ISA for a spouse, civil partner or family member. Children have a Junior ISA allowance of £4,368 in the current tax year, which can be an excellent way to help them save for their future.

Some ISAs specifically help first time buyers. At the start of December, the Help-to-Buy ISA was withdrawn for new investments. However, if you started a Help-to-Buy ISA before 1 December 2019, you can continue to contribute up to £200 a month and can claim to claim the Help-to-Buy bonus until 1 December 2030.

Is LISA an investment friend?
If you have missed out on the Help-to-Buy ISA, the Lifetime ISA (LISA) is now the only ISA plan that offers incentives for saving towards a first home purchase. The Lifetime ISA is available for people aged under 40, with an annual limit of £4,000 which counts towards the overall annual ISA allowance. Parents and grandparents can use LISAs to provide a stepping stone for children or grandchildren to get on the housing ladder.

The Lifetime ISA offers an incentive of a 25% bonus from the Government, when the funds are used for a first time property purchase up to the value of £450,000 or retirement. However, you should be careful if you choose a LISA, as any other withdrawals (other than on terminal illness) are subject to a penalty of 25% of the amount withdrawn. A recent Freedom of Information request revealed that HMRC had collected over £9m in penalties from LISA encashments between April 2018 and November 2019.

If you have maturing cash deposits, please ask your Origen adviser to review your circumstances, before you reinvest the funds. Our advisers can then make recommendations for these maturing investments or any surplus funds, so that your investments are structured to meet your financial objectives and suitable for your attitude to risk.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

CA4926 exp 06/2020

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