personal finance

Isa: Use your allowance now or lose it


The Isa allowance is issued on a “use it or lose it” basis, so if you don’t use yours before the deadline of midnight on Friday April 5, you have lost it for good. Don’t wait until the last minute because there is plenty to consider, for example, whether to save in a low-risk cash Isa, or invest in a stocks and shares Isa instead. There is a growing choice of Isa accounts to invest in, including the innovative finance Isa which pays higher rates of interest with more risk, the lifetime Isa that offers younger savers a government bonus, and the junior Isa for children.

Less taxing

The annual deadline has traditionally triggered a last-minute rush known as the “Isa season”, but this has eased in recent years.

One reason is that the allowance is now worth £20,000 a year, and only the very wealthy can max out their limit. Those who miss this year’s deadline can simply use next year’s allowance instead.

The personal savings allowance has also reduced the attraction of cash Isas, because it allows basic rate taxpayers to earn up to £1,000 of savings interest each year without paying income tax; £500 for higher rate taxpayers.

Demand has fallen steadily over the past six years but Laura Suter, personal finance analyst at investment platform AJ Bell, said people should still use their allowance if they can.

“Once money is inside an Isa it is protected from tax forever.”

Millionaires

Isas are now celebrating their 20th anniversary, having been launched by former Chancellor Gordon Brown in 1999.

If you had invested the maximum sum each year you would have paid in £206,000 in total, and there are now several hundred Isa millionaires.

Moira O’Neill, head of personal finance at Interactive Investor, said although most normal investors won’t have anywhere near that amount, saving something is better than doing nothing: “Patience, discipline and a well-balanced portfolio is a good start to saving for your future.”

Interactive Investor analysed the portfolios of its Isa millionaire customers, and found the five most popular individual company stocks were Royal Dutch Shell, GlaxoSmithKline, Lloyds, Aviva and Legal & General.

Popular investment funds included Fundsmith Equity, First State Stewart Asia-Pacific Leaders, Janus Henderson European Selected Opportunities, Baillie Gifford Global Discovery and Investec UK Smaller Companies.

Right balance

Damien Fahy, founder of personal finance site MoneyToTheMasses.com, said that before buying any fund you should make sure it fits with what you already have: “Building a balanced portfolio covering a spread of different regions, countries and asset classes helps to reduce risk.”

Falling interest rates have left cash Isas in the doldrums but rates are picking up, with the average one-year fixed-rate Isa now paying 1.3 percent, up from 1.12 percent in March 2018.

The average easy access Isa pays 0.96 percent, up from 0.79 percent, according to MoneyFacts.co.uk.

The site’s finance expert Rachel Springall said savers should also consider moving existing cash Isas to get a better rate now when providers are competing for business.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.