Don’t wait for the end of tax year reminders! There are advantages to planning your ISA investments at the beginning of the tax year.
With ISAs all the taxation benefits occur after investment has been made and yet the focus is nearly always on tax year end contributions.
Countless articles on ISAs filled the weekend press in March – as they always do – and doubtless they will re-emerge, just like a financial signal of spring, in 12 months’ time. For other investment types, such as venture capital trusts and pensions, there is a logic in waiting until the end of the tax year. After all, you will have a better idea of your income for the year and hence your tax position. The same is not necessarily true of ISAs and indeed, it is sensible to contribute to ISAs as early in the tax year as possible so that you get the tax benefits for as long a period as possible.
As a reminder these tax benefits include:
- No UK tax on dividends – a significant element given that dividend allowance has been cut from £5,000 to £2,000 for 2018/19.
- No UK tax on interest earned.
- No UK Capital Gains Tax on any profits realised.
- Nothing to report to HMRC on your tax return.
- ISA rules now allow a surviving spouse or civil partner to inherit your ISA benefits, effectively treating your ISAs as joint investments.
Making an ISA contribution does not necessarily mean paying in cash. It can include selling an existing investment you hold personally and repurchasing it within an ISA. You may crystallise some capital gains in the process, but at the start of the tax year you almost certainly still have your full £11,700 annual exemption available.
You can save up to a maximum of £20,000 in 2018/19, and this can be in a cash ISA, a stocks & shares ISA, an innovative finance ISA, a Help to Buy ISA, a Lifetime ISA or a mixture of all of them (with a little negotiation). It’s a simple and tax-efficient way to grow your wealth over time.
If you would like some help with ISAs or more general Investment advice, please get in touch – we can help.
Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.