Martin Lewis offers advice on savings and interest rates
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ISA accounts can be opened from today as the new tax year starts. For the current year, savers can contribute up to £20,000 across the four main types of ISA which includes cash, stocks and shares, innovative finance and Lifetime accounts.
Fortunately, savers have many options available to them for where they can open an account.
ISAs can be opened with:
- Building societies
- Credit unions
- Friendly societies
- Stock brokers
- Peer-to-peer lending services
- Crowdfunding companies
- Other financial institutions
Each type of provider will need to be contacted for more details as they may have slightly different account opening procedures.
Savers are regularly encouraged to utilise ISAs as all of them shield consumers from income and capital gains tax.
Recently, Rishi Sunak froze income tax thresholds in a bid to help savers but research from Hargreaves Lansdown (HL) showed more people are being impacted by the cost and the Chancellor’s recent actions may create more problems.
- There were 31.6 million income taxpayers in 2018/19, who forked out £187billion in tax – up from £31.2 million and £181 billion a year earlier.
- There were 26.3 million basic rate taxpayers – up from 26 million a year earlier.
- There were 4.23 million higher rate taxpayers – up from 4.21 million a year earlier.
- There were 399,000 additional rate taxpayers – up from 392,000.
- The average tax rate was 16.7 percent, and the average tax paid was £5,900, up from £5,800 a year earlier.
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Sarah Coles, a personal finance analyst at HL, commented on this: “We paid £6billion more in income tax in 2018/19, despite a hike in the thresholds.
“It goes to show how much damage frozen tax thresholds could do to our incomes in the coming years.
“In 2018/19, the personal allowance had risen from £11,500 to £11,850 and higher rate tax became payable from £46,351 instead of £45,000.
“However, the number of people paying each level of tax still increased.
“Hundreds of thousands of people saw pay rises take them into paying tax for the first time, or a higher rate of tax, and the government reaped the rewards.
“Income tax rates will rise for the final time in this parliament in April, and will then freeze. It means the number of people paying higher rates of tax will rocket.
“You don’t have to take the extra tax on the chin, because you can take steps to ensure you’re not paying over the odds.
“If you have income from savings and investments, your ISA allowance will shelter gains and income for life. Pension contributions, meanwhile, attract tax relief at your highest marginal rate, and the first 25 percent taken from the pension is usually tax-free. And if you’re married, sharing assets between spouses can reduce the tax bill significantly.”
To open a cash ISA, a person must be at least 16 years of age.
All other ISAs require the holder to be at least 18.
There are also Junior ISAs available for children aged under 18 but these have an annual limit of £9,000.
Lifetime ISAs also have a yearly limit of £4,000 but these accounts may also have Government bonuses added to them.
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