Make the most of this year’s bigger £20k ISA allowance

woman smiling over the new £20k ISA allownace

10 Christmas Crackers

MoneyPlus Features Team

22nd August 2017 at 3:51pm

There’s good news for savers, with this year’s ISA allowance the highest it’s ever been. You can now save up to £20,000 into one of the UK’s favourite saving products.

Let us help you find out more about this welcome increase.

Boost your tax-efficiency

ISAs can be a great way to save in a simple tax-efficient way, while generally giving you instant access to your money.

A leap in the annual ISA allowance from £15,240 to £20,000 this tax year means you can now save considerably more in a tax-efficient place. There’s no further tax on income and no capital gains tax on ISAs.

You can now save your allowance into a Stocks and Shares ISA, a Cash ISA, or a combination of both in any proportion.

This gives you short and long-term saving options. You can use a Cash ISA as an emergency savings fund, for example, you can leave your money in a Stocks and Shares ISA to give it a greater chance to grow.

Saving towards your family’s future

The Junior ISA allowance has also enjoyed a small increase, going from £4,080 to £4,128.

Junior ISAs let you save and invest on behalf of a child under 18 and their tax-efficiency means the money you put away has the chance to grow even faster.

A Junior ISA could provide you with a tax-efficient way to save towards anything from university fees to their first car or just put them on the path to a secure financial future.

But remember, once the child reaches 18 they will have access to the savings and they can spend it how they want, as it’s their money.

For more information on Junior ISAs, it’s worth looking on the Money Advice Service website where you’ll be able to see what the options are and which Junior ISA might be right for your child.

Your ISA legacy

And for those couples who have planned their savings together, ISA inheritance rules could mean the tax benefits of saving last longer.

The government introduced new rules on 6 April 2015 allowing your surviving spouse or civil partner to continue saving tax-efficiently after you die. Anyone whose spouse or civil partner died on or after 3 December 2014 gets a one-off additional ISA allowance equivalent to the value of the deceased person’s ISA when they died.

It’s worth pointing out that ISA inheritance rules don’t mean they’re free of Inheritance tax (IHT). ISA funds are still subject to IHT although they’re covered by spousal IHT exemption if they pass to your spouse or civil partner. But the ISA funds inherited by your spouse could be subject to 40% IHT when they die.

Take full advantage

Remember, at the beginning of each new tax year running from April to April your annual ISA allowance resets. You can’t carry your allowance over between years, so if you don’t use it you lose it.

Although we’re almost half way through the tax year, there’s still plenty of time to make the most of this welcome bump up and take full advantage of the tax benefits. The sooner you save, the more tax-efficient growth you could enjoy.

If you’d like an idea of what your Stocks and Shares ISA could be worth in the future why not try our simple ISA calculator and see.

A Stocks and Shares ISA is an investment which can go down as well as up in value and you may get less back than you paid into it.

The information in this blog or any response to comments shouldn’t be taken as financial advice. Laws and tax rules may change in the future and how they affect you depends on your own circumstances.

The information here is based on our understanding in August 2017.

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