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Six reasons to use your ISA allowance

 
Rob Morgan
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ISAs remain one of the most popular ways to invest for a number of good reasons. (Source: Getty)

1. Excellent tax benefits

ISAs are one of the simplest and most effective ways to save tax. If your investments are in an ISA you don’t have to pay tax on income from them, and there is no capital gains tax to pay on any profits.

Even if keeping your money outside the clutches of the tax man doesn’t seem relevant now, it might in the future. It’s worth planning ahead for when your wealth grows. Remember, however, tax rules can change and the value of any benefits will depend on your individual circumstances.

2. Simplifying your life

ISA investments don’t need to be declared on a tax return, so they can make your affairs simpler. Over the years it’s possible to build up your own personal (and entirely legal!) ‘tax haven’ using ISAs. This means investment decisions can be made purely on merit, free from the burden of tax considerations.

3. Flexibility

As well as being able to invest in a wide range of assets you can access your money at any time, so they are suitable for a variety of saving and investing needs. Please note that investments may need to be sold before a withdrawal can take place.

Additionally, ISA holders can now transfer their accounts without restriction or tax charge. A Cash ISA can be transferred to a Stocks & Shares ISA, and vice versa, giving savers and investors the full flexibility to move their ISA savings into the account which suits them best.

We would suggest investors use their ISA allowance before investing outside an ISA, and with Charles Stanley Direct there are no additional charges involved in investing in an ISA compared with a non-ISA investment account.

4. Once it’s gone it’s gone

Tax years run from 6 April one year to 5 April the next. This tax year (2017/18) you can subscribe up to £20,000 across all your ISAs and shelter your money from tax. However, you can’t carry over any unused allowance, so if you don’t use your allowance before 5 April, it is lost forever. You’ll get a new allowance in the new tax year, also £20,000, but you could have missed the opportunity to shelter more of your savings and investments from tax.

5. The dividend tax allowance is set to fall

Currently, all taxpayers have a tax-free dividend allowance of £5,000 a year. After this, the rate of tax payable on dividends depends upon the individual investor’s other taxable income. The allowance will fall to £2,000 a year from April 2018, which will affect those with investments held outside tax wrappers producing more than £2,000 of annual dividends.

6. Allowances can pass to your spouse on death

If an ISA holder dies, a surviving spouse or civil partner is able to ‘inherit’ the tax benefits. ‘Additional permitted subscriptions’ were introduced in 2015 and are extra ISA allowances equal to the total value of ISA accounts held by the deceased spouse or civil partner at the date of their death.

This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them, may fall as well as rise and the amount realised may be less than the original sum invested. Investment decisions in collectives should only be made after reading the Key Investor Information Document, Supplemental Information Document and/or Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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