Tuesday, 31 March 2015

Life | ISA ISA Baby


The UK financial tax year end is fast approaching which means, if you haven't done so already, you've only got a few more days to use up your ISA allowance. Your what allowance now? Do you have a National Insurance Number? Are you a UK tax payer? And are you looking to save? Yes to all three? Great! Read on...
So what allowance are you going on about?
As a UK taxpayer and a UK resident, you are entitled to an ISA so long as you meet a couple of other criterions. It allows you to save a certain amount of money each year tax free. 
What does ISA stand for?
Individual Savings Account
How does it work?
It runs from UK tax year to UK tax year which is from the 6th April one year to the 5th April the following year. This means we are currently in 2014/2015 tax year (6th April 2014 to 5th April 2015) and on 6th April 2015, the 2015/2016 tax year begins
How much can I put into it?
The amount you can put in changes from tax year to tax year, and the following tax year allowance is normally announced in March when the Budget is also announced. 2014/2015 tax year states you can go up to a maximum of £15k but for 2015/2016 tax year, this goes up to £15,240. This means, if you have a fair bit of savings, then by 7th April, you could potentially have £30,240 in an ISA because you've maxed out 2014/2015's and 2015/2016's tax years allowances.
So what can I do? 
There are two main types of ISA - a cash ISA or a stocks and shares ISA (S&S ISA), the latter is where you do a bit of investing. Cash ISAs are generally instant access whereas if you want to access the funds within a S&S ISA, you usually have to wait about 5 working days. There is also a Help to Buy ISA coming out in due course, but not much details have been announced about this. The allowance you have allows you to put money away in a combination of these i.e. you can put £8k in a cash ISA and £7k in a S&S ISA or whack the full £15k in the cash ISA - the choice is yours.
Why should I get it?
One of the main advantages of it is that you are saving tax free. You pay tax on practically everything including the interest on your savings accounts. Before tax is taken off, it is known as gross interest or gross pay. After the taxman has had its pay, it then becomes net interest or net pay. ISAs are the only UK savings accounts that allows you to save money without any interest being taken off. It also means that if you have a S&S ISA, you are free from both income tax and capital gains tax. 
Anything else I should know?
You can only set one up in each tax year and cannot subscribe to more than one in each tax year. While you may be able to have more than one bank account with other providers, you cannot hold an ISA with two providers in the same tax year so be careful of this.

Is that it? 
No, one more thing that's valid for this 2014/2015 tax year at least anyway. Normally if you set one up, and you decide to put the full £15k in on Day 1, but then Day 2 you decide to take £1k out and so the balance is now £14k, you would not be allowed to put that £1k back in until the next tax year. However, I believe the rules surrounding this is now changing for the next tax year, so again be mindful of this. 
Great. I want to set one up - how do I do it?
Most financial institutions in the UK will offer an ISA but you need to double check with the respective provider. In all cases, you will need to bring in your National Insurance Number/NIN (you can find this on your payslip or self assessment returns), and the other conditions the provider may set. Another thing to also bear in mind is if there are any lock in periods. Some providers have a 2 or 3 year ISA which means you cannot withdraw the funds from the ISA within the lock in period and therefore getting a higher interest. It's always worth checking out what different providers are offering and their eligibility criteria. Money Supermarket has some info on cash ISAs as well as S&S ISAs
Enjoy,






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Disclaimer: I am not a tax adviser nor am I am a financial adviser, just someone who happens to know a little bit about banking in the UK 
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2 comments

  1. I feel like I really needed to read this one haha. Definitely gonna bookmark it as every single tip seems useful :) Txx

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