Your ISA allowance is higher than ever. Here’s why you should make sure you use it.
£20,000. That’s how much you can currently save in Cash or Stocks & Shares ISAs during the financial year.
Those of you with longer memories though, will know that the ISA allowance hasn’t always been so generous. When ISAs were first introduced back in1999, the total tax-free savings allowance was just £7,000; and only £3,000 could be put into a Cash ISA. And that’s how it stayed for the next nine years…until the effects of the 2008 crash forced the government to act.
In 2008/9, they raised it by all of £800, so you could save £7,200 in a Stocks & Shares ISA, or £3,600 in a Cash ISA. But the following year it went up again, and crept up year on year after that. Then in 2014/15, to try and kick-start savings in a world of ultra-low interest rates, the limit was raised to £15,000 – and the rules were changed so you could put it all in a Stocks & Shares ISA, a Cash ISA, or a mix of the two.
Back in April 2017, the Government finally raised the annual ISA allowance to £20,000.
Why the dramatic rise? Two reasons: one is, as the government said, “to help savers at a time of unprecedentedly low interest rates”. The other is to keep ISAs, and particularly Cash ISAs, alive after they also announced that basic rate taxpayers could take advantage of the Personal Savings Allowance, so they wouldn’t pay tax on the first £1000 of interest earned.
Given that the average Cash ISA interest rate is currently around 1.16%, that means you’d have to have about £100,000-worth of savings before you paid any tax.
So is it still worth using your ISA allowance. Definitely.
The tax-free wrapper is a ‘gift’ from the government, that can be accumulated year after year. So ISAs should be looked at for the long-term; if you invest your full allowance every year in the right ISA, in 10 or 15 years your portfolio should be worth well into six figures – and unlike other investments, you won’t need to worry about the government scrapping the current ‘tax-free’ allowance, or paying capital gains tax when you want to withdraw your profits.
Now whether a Cash ISA is the right choice…well, that’s another story!
In the Know can help you review your ISA investments through regulated ISA experts, without any commitment or cost. Just use this link, and check your ISA allowance is working most efficiently for you.