The end of the tax year historically sees an influx in ISA contributions, despite the fact that it makes more sense to invest at the startof the tax year. This allows you to take advantage of a full year of tax shelter.
It’s around now that the personal finance pages start to fill with stories about ISAs, often including tales of ISA millionaires. For all the coverage, these remain a rare breed, but they do serve as a reminder that regular saving over a long term can create significant amounts of capital.
Recent years, however, have seen total ISA contributions fall. This is primarily due to a sharp drop in the popularity of the cash ISA, with contributions falling by over a third between 2014/15 and 2016/17. This is for two good reasons:
- Ultra-low investment rates and limited competition between banks have made prospective returns look miserable, particularly as inflation has picked up
- The introduction of the personal savings allowance in 2016/17 has meant that many depositors no longer need an ISA to escape tax on their deposit interest
Stocks and shares contributions, on the other hand, have reached a new high, most likely helped by some ISA investors abandoning the cash version. There are a few points to remember this tax year when making your stocks and shares ISA investment:
- You can invest in an ISA annually, and for this year the limit is £20,000 in total, to all ISAs. This is up from £15,240 in 2016/17 and will be held at £20,000 in 2018/19
- Dividends within an ISA are free of UK tax. With the dividend allowance falling from £5,000 in 2017/18 to £2,000 in 2018/19, you may find you have to pay tax on shares held outside of an ISA
- It’s important to get your money into a tax-free shelter. Whilst your annual ISA limit can’t be carried forward to the next year, you don’t have to invest it all in funds by 5 April – once you hold cash in your ISA, you can drip feed or ‘phase’ your investment into funds, if you wish
If you require any guidance in selecting the right solution for you, please do not hesitate to contact us to speak with an experienced independent financial adviser.
The most suitable course of action is dependent upon individual circumstances and professional advice should be sought. Taxation is subject to change.