Making financial decisions is really important and ensuring that you receive the correct advice and act in the most tax efficient manner is paramount in achieving this. With an unsteady economic outlook and increased taxes for many of us, it is important to take advantage of any tax breaks that are available.
The annual ISA allowance is such an opportunity and is currently £11,520 per individual for the tax year 2013/14. This allowance is expected to increase from the current £11,520 to £11,880 for the tax year 2014/2015. All proceeds payable from an ISA are free of income and capital gains tax so the ISA must form a part of our financial planning.
The contributions to an ISA can be made via a Stocks and Shares version, a Cash ISA or a combination of both. With interest rates at a continued record low for nearly 4 years the attraction of the Cash ISA has decreased as its returns are no longer keeping pace with inflation.
You may need to ask yourself, how much does my Cash ISA now pay and can I continue to solely pursue investing in Cash?
Should you be considering a Stocks & Shares ISA?
Stocks and shares ISAs are different from Cash ISAs – which are just tax-free savings accounts.
A stocks and shares ISA is a tax-efficient investment account that lets you put money into different types of investments, including unit trusts, open-ended investment companies (OEICs) and investment trusts, as well as government bonds and corporate bonds.
You can also buy individual company shares and put them into your Isa. So unlike with cash ISAs, you should only invest if you are prepared to take the risk that your investments can go down as well as up in value. Also it is usually recommended that you invest for a minimum of 5 years when investing into a Stocks & Shares ISA.
The value of the investment can go down as well as up and you may not get back as much as you put in.
The Junior ISA (JISA) was introduced in November 2011 and enables investments to be made for the benefit of your children with the same tax efficiency of the adult ISA.
You can invest up to £3,720 into a JISA for the tax year 2013/14 and this is expected to increase to £3,840 for the tax year 2014/15. This can be achieved by a Cash ISA, Stocks and Shares ISA or a combination of both. If your child has qualified for a Children’s Trust Fund (CTF) they cannot invest into a JISA. However, the rules and regulations of the CTF have been brought into line with that of the JISA.
Contributions can begin from as little as £10 per month and all proceeds are free of capital gains and income tax with no penalties to access the money. Importantly the contribution can be made by anyone on behalf of the child and contributions can be made on a regular or lump sum basis. When the child reaches age 16 the JISA rolls over into an adult ISA and can continue.
This is a new tax opportunity created by the government to encourage us to fund for our children’s future and perhaps the most tax efficient.
So with the end of the tax year creeping closer, make sure you have maximised your ISA allowances for this year and also start planning for next year’s allowance.
Ruth Burley DipPFS