There are four different kinds of Individual Savings Accounts (ISA), a cash ISA, stocks and shares ISA, innovative finance ISA and Lifetime ISA. You do not need to pay tax on interest on cash in an ISA or income from investments in an ISA. Every tax year, which extends from 6 April to 5 April, you are able to save money into one of each kind of Savings Account.
How much is the tax free allowance for ISAs?
Investors and savers are allowed to place £20,000 into their ISA tax-free before the end of the financial year.
Personal finance analyst at Hargreaves Lansdown, Sarah Coles said: “There are three golden rules to help you stay on track even when the investment world is as turbulent as it is right now: make sure you have a diverse portfolio; stick with it for the long term; and use your tax breaks, so that when we get an upturn, you’re in the best possible position to take advantage.”
UK residents aged 18 and over are allowed to invest up to £20,000 each and parents are able to fund a junior ISA or child trust fund with up to £4,368 per child for the tax year 2019-20.
This makes a tax-free total of £48,736 available for a family of four before April 6.
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Will the ISA deadline be postponed this year?
As it stands, the deadline falls on April 6, and failure to pay the tax-free allowance into ISAs will see savers losing all unused allowance for the year.
Peer-to-peer lending organisation Sourced Capital are calling on the Government to extend this year’s deadline under the current, challenging circumstances.
Sourced Capital want the Government to push the deadline back until October, to allow investors and savers the opportunity to maximise their tax-free profits and recover financially.
Sourced Capital founder and Managing Director Stephen Moss said: “There are just a few days left if you do not want to make the most of your tax free ISA allowance for this financial year.
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“But with many of us now struggling to work due to the sanctions imposed because of the coronavirus, we believe the Government should delay this deadline until October at least.
“Doing so would hopefully allow for the dust to settle and for the many who have seen their income dwindle, to return to work and accumulate the savings necessary to maximise the benefit of their chosen ISA scheme.
“With a second reduction in interest rates to a low of 0.1 percent, this is even more vital as the returns available were already slim, to say the least.”
Rates on cash ISAs are being cut following the Bank of England’s decision to drop its key interest rate to a historic low of 0.1 percent
The best rate going for a one-year fixed ISA currently stands at 1.35 percent and is from Virgin Money.
The best five-year fixed cash ISA is from Paragon Bank and pays out 1.6 percent interest.
Eleanor Williams of financial analyst Moneyfact said: “IF savers are hoping to secure a new ISA deal, the time to act is now.
“Things are changing rapidly at the moment, and those who want to secure a deal would do well to act quickly before their chosen account is withdrawn.”
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Although fixed-term deals offer significantly higher rates of interest, investors must be sure they can do with their money being inaccessible for a period of time.
Daren Cooke of financial adviser Red Circle said he was not surprised that people were reluctant to make investments at the moment.
He said: “With global markets slumping and a recession seemingly inevitable, it is understandable that people are reluctant to make new investments now.
“You should buy on the way down, not on the way back up.”
What is an Innovative Finance ISA?
An Innovative Finance ISA is another type of savings account which was introduced in April 2016 for UK taxpayers to use. The IFISA can yield returns as high as 10-12 percent per year.
Just like the Cash ISA and Stocks and Shares ISA, the IFISA allows you to invest your money into the peer-to-peer market.
Just like the others, an IFISA gives you an allowance of up to £20,000 which you can distribute across other ISAs.
The option to transfer your previous year’s investments into an IFISA is also available.
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