Easy Guide To Making The Most Of Your Isa Allowance

By Author: Malcolm Anderson
Total Articles: 6
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Now more than ever, it's beneficial to make the most of your annual tax-free ISA allowance. Considering the government's VAT raise and the proposed hike in National Insurance, a basis rate tax payer could soon be paying more than 43% in taxes on every pound they earn and spend, while higher rate tax payers can lose as much as 51%.



Starting the beginning of the new financial year on April 5, the UK Treasury will increase the ISA allowance from £10,200 to £10,680. Thus you can take even better advantage of ISA's as an investment vehicle to earn tax-free money.



The following guide will give you top tips on how to best out of your investments and thus make the most of our ISA allowance.



Use It Or Lose It


ISA’s carry no capital gains or income tax to pay on investment returns. The annual ISA allowance cannot be carried over into the new tax year, so if you don't invest in ISA's by the cut-off date you will lose out on a major tax-break opportunity.



Currently, you can invest £10,200 as a total in ISAs. ...
... This amount can be entirely spent on Stocks and Shares ISA's or a maximum of £5,100 can be invested in a Cash ISA and the rest in stocks. From April 5, this amount is raised to £10,680, with an increase of £5,340 for Cash ISA's.



Financial experts advise people not leave it too long before investing. Leaving your ISA subscription to the last minute of the tax year amounts to missing out on up to 12 months of tax efficient growth and income per contribution.



A couple who both use their ISA allowance could save as much as £204 on income tax this year, rising to £213.60 from the start of the next tax year.



Making sure you choose the most suitable funds to invest in, that not only match your needs but also have a healthy interest rate, is essential to make the most of your ISA allowance.



How to Choose the Right Cash ISA’s


A Cash ISA is the safest investment route to take, and particularly makes sense if you’re new to the game. Stocks and Shares ISA's are both more complex and riskier; you will need to keep a careful eye on the stock market.



When shopping around for Cash ISA's, you firstly need to decide if you want the type which allows you fast access to your money, or a fund which locks away your cash for a set length of time.



The best instant access ISA's generally carry rates of around 2-3%. You will get better returns for your investment with a fixed-term ISA, which typically offers approximately 4%. All in all however, your choice will depend on your individual needs.



Regardless of which option you decide on, the main thing is to find the best rate available on the marketplace. Currently, ISA providers are particularly competitive, so there are attractive rate offers out there if you thoroughly do your research and comparisons.



How to Find the Best Stocks and Shares ISA's


While Cash ISA's are safe, they don’t offer rates as attractive as Stocks and Shares ISA's. Analysis has shown that Shares ISAs return four times as much as Cash ISAs in 2010.



These types of funds carry varying amounts of risk. It’s a good idea to diversify your ISA allowance investments in a variety of products such as bonds, single company equities, investment funds and exchange traded funds, so that you don't have all your eggs in one basket.



Also, be aware that the longer you hold onto your ISA, the more likely you are to see gains. This is because the stock market tends to be volatile over the short term but over ten years or more you will certainly benefit from more solid returns.



An experienced fund manager is worth their weight in gold when it comes to making sure your stocks and shares yield successful results and weather market downturns. They will also be able to assess the level of risk that will suit you and advise on the right investments accordingly.



Conclusion


All in all, you can make the most of your ISA Allowance by considering a mix of cash and shares in your ISA portfolio to ensure your risks are minimised and the returns on your investments are as favourable as possible.



About the Author: Malcolm Anderson is an independent advisor on the UK ISA Allowance.