ISA deadline: What should you do with your allowance?


The end of the 2018/19 tax year is now just days away, and you should be thinking about using up your ISA (Individual Savings Account) allowance if you haven’t already. It’s also the perfect time to plan how you’ll make the most of your tax-efficient savings for the year ahead.

ISAs were first introduced two decades ago and over the years they’ve become an essential tax wrapper for financial planning. The current allowance is £20,000 per person each year, which can be deposited in a single ISA or spread over several different accounts.

The main benefit of using an ISA is that they provide a tax-efficient way to save or invest. Any capital growth, interest or dividends from an ISA are free from Capital Gains Tax (CGT).

Choosing where to place your savings

When you’re deciding where to place the remainder of your allowance, the first question to answer is; cash or investment?

Cash: A Cash ISA will pay interest on your deposit. Assuming you stay within the limits of the Financial Services Compensation Scheme (FSCS), the money is protected. However, low-interest rates may mean growth fails to keep up with inflation, effectively devaluing it. As a result, a Cash ISA is often advisable for savings that need to be easily accessible or you’ll want to use in the next few years.

Investment: Investing through an ISA is tax efficient and can be a way to grow your savings through returns. However, all investments do carry a level of risk and your money isn’t protected. A Stocks and Shares ISA may be a good option for you if you already have a financial buffer in place and you don’t need to access the money in the near future. Ideally, you should invest with a minimum time frame of five years. This gives you a greater chance to ride out volatility in the market.

You don’t have to choose between a Cash ISA and Stocks and Shares ISA, your annual allowance can be spread across as many different accounts as you like. If you’re unsure which option is right for you, please contact us.

In addition to Cash ISAs and Stocks and Shares ISA, there are other options that may help boost your savings. A Help to Buy ISA, for example, can boost savings if you’re looking to purchase your first home. A Lifetime ISA (LISA) can also provide a government bonus when saving for a first home or retirement.

Planning for the year ahead

While you’re planning to use what’s left of your 2018/19 allowance, it’s a good time to look at the year ahead.

Setting out how you want to use your allowance for the upcoming year can help ensure your decision aligns with your wider financial goals for the next 12 months and beyond. Spreading out deposits rather than using it up in the weeks before the end of a tax year can also be useful.

If you’d like to use all or a portion of your ISA allowance for investments, for example, ‘drip feeding’ deposits in over the course of the next 12 months, rather than adding the full amount in a single transaction, may be beneficial. This means the points you’re buying at will be spread out, giving you an improved chance of purchasing at low points.

Saving tax efficiently for children

In addition to adult ISAs, there are Junior ISAs (JISA) available. These accounts can be opened for those under 18 and deliver the same tax-efficient benefits as their adult counterparts. However, the JISA annual allowance is lower, each year up to £4,260 can be deposited.

When saving into a JISA, the account is in the child’s name and money cannot be withdrawn from it. Once the child reaches 16, they’re able to take control of the account, for example, selecting where their money is invested or swapping to a different ISA provider. However, they cannot take money out of the account until they turn 18, at which point it will convert into a standard ISA.

As with adult ISAs, you can choose for a JISA to be saved in a cash account or invested. Generally, the interest rates for a Cash JISA are more competitive than standard ISAs, making it an effective way to save for a child’s future. When choosing to save or invest money, how long the money will remain in the account is a key question to consider.

To discuss how you could make use of your remaining ISA allowance for the current tax year and putting a plan in place for the medium and long term, please get in touch.