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What You Need to Know Before the ISA Deadline This April
Individual Savings Accounts (ISAs) give individuals the opportunity to earn tax-free interest on their savings and investments. The UK government has thresholds in place, including how much you can invest in an ISA within a given year, as well as when the deadline for contributions is each year.
Both of these factors are important to keep in mind if you’d like to maximise your tax-free returns. Here’s what you need to know before the ISA deadline swings around shortly.
The ISA Deadline is Fast Approaching
The UK tax year runs from the 6th of April of the current year through to the 5th of April of the following year, meaning that the current deadline is right aroundthe corner. For this tax year, the contribution limit is set at £20,000 across all types of ISAs available.
This gives you just a few weeks to do what you can to make the most of this year’s ISA allowance. Once the new tax year starts, the allowance resets. Keep in mind that once this happens, any unused element is lost and cannot be carried forward.
For the first time investor
If you haven’t opened an ISA account this tax year, you still have time to do so and to move some money into the account type of your choice. You can open an ISA through banks, credit unions, peer to peer lending services and other financial institutions, depending on the type you are interested in.
The Different Types of ISAs
Whether you’re a first-time investor or simply looking to diversify your portfolio, knowing more about each type of ISA can help you decide which one may be best suited to your needs.
If you’re a UK resident and over 16, you’re eligible to open a Cash ISA. These typically offer easy access or fixed term options, with the interest rate on offer aligned with the fixed term you commit to. This type of ISA comes with FSCS protection, which means you’re always covered for up to £85,000, making it a relatively low-risk option.
Stocks and Shares ISAs
Stocks and Shares ISAs give you the chance to invest your money into a range of financial products - including investment funds, trusts, government bonds, individual shares and more - while being exempt from dividend tax and capital gains tax. As a result of this, they tend to be higher risk than cash ISAs, but Stocks and Shares investments can potentially generate better returns too.
Lifetime ISA accounts are there to help you reach a milestone in your life. Their earnings can go towards buying your first home or towards retirement savings. You need to be under 40 years old to open one of these, and you’re able to
contribute up to £4,000 each tax year until the age of 50. The government offers a bonus of 25% on your yearly contribution up to £1,000 to help you along the way, and penalty-free access becomes available when you purchase a home or reach the age of 60.
Innovative Finance ISAs are newer investment products, where consumers can earn tax-free returns by investing through a peer to peer (online) network. IF-ISAs allow account-holders to invest in various kinds of loans - e.g. commercial and business loans, secured loans or consumer loans - and rates can be attractive. Remember that, as with Stocks & Shares ISAs, capital is at risk and IF-ISAs do not come with FSCS protection like a Cash ISA. Learn more about this investment option with this handy Beginner’s Guide to IF-ISAs.
Capitalise on the ISA Deadline
With just a short while to go until the ISA deadline is here, the time is now to maximise your potential tax-free earnings on existing investment accounts, or to open your very first ISA.
By utilising the power of any of the ISA types, you can get closer to your savings and investment goals and prioritise your financial wellbeing to make your money work better for you as we head deeper in the 2020s.
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