Spring into action with your ISA allowance - use it or lose it
Each and every tax year since 6 April 2017 individuals have been handed a £20,000 tax-free allowance to save or invest in an Individual Savings Account (ISA).
The government is understood to be considering reforms to ISAs but nothing will change this tax year, so rather that speculating on what may or may not change in the future, it makes more sense to focus on making sure you use as much of your allowance as possible now. Remember, if you don’t use it before 5 April, you lose it.
There are four types of ISA: Cash ISA, Investment (Stocks and Shares) ISA, Lifetime ISA and Innovative Finance ISA and your £20,000 allowance covers all contributions to these accounts in any one tax year. While having cash savings is important for short-term expenses, investing in an Investment (Stocks and Shares) ISA can form an integral part of growing your wealth.
All the account choice, different rules and contribution limits can sometimes make deciding what to do with your ISA allowance feel overwhelming: should you invest, should you save and where to do it? If you’re asking the same questions, you’re not alone!
Recent research from Barclays has shown that here in Britain, we stick to the most straightforward option; Cash ISAs, like no other – but is it always the right choice?
ISAs – what’s not to like?
There are plenty of benefits to utilising your annual ISA allowance by topping up an Investment (Stocks and Shares) ISA. Here are some of the key perks:
- Your money can grow free of tax – there’s no tax to pay on any dividends from shares or interest received.
- You don't pay capital gains tax on any profits made from your investments if they’re held within an ISA.
- Investing in an ISA should simplify your taxes – you don’t even need to mention ISAs on your self-assessment tax return.
- Your money isn’t locked away – you can access it at any time by selling out of your investments or simply withdrawing the cash.
- ISAs can be flexible. Rules allow savers and investors to take money out of an ISA at any time, without losing any of the valuable tax benefits. As an example, let’s say you pay £10,000 into an ISA during the 2024-25 tax year. You then take out £5,000. Following that withdrawal, the amount you can now put in during the same tax year is £15,000 if your ISA is flexible, which is the remaining allowance of £10,000 plus the £5,000 you withdrew. This feature is known as being ‘flexible’. At Barclays we offer a flexible ISA, but not all providers do.
- ISAs don’t need to be held with one provider the whole time. You can switch ISA providers should you wish – you just need to request the move and the transfer will be done for you. You can also transfer money held in a cash ISA into an investment ISA, and vice versa.
- Although the total amount that can be paid into ISAs is £20,000 in the 2024-25 tax year, you don’t need to have this much available to take advantage of ISA benefits. You can save or invest as much as you can afford in either a lump sum or monthly amounts.
Cash or Investment (Stocks and Shares) ISA?
The investment mantra we like to quote is; save for today, invest for tomorrow.
A cash ISA might be right for you if you’re looking for a savings option with easy access to your money for short-term spending.
For money you want to put aside for the long-term an Investment ISA is worth considering, as long as you’re prepared to take on the risk that in exchange for a potentially higher return, you might lose money.
You might decide you’d like to have some money in each – there’s a role for both saving and investing.
The highly coveted status of being an ISA millionaire belongs to just a few thousand people in the UK who had time, money and probably some good fortune on their side. However, there are six key investing habits that many investors will follow to give them the best chance of growing their money. Using your ISA remains the easiest and most accessible way to invest.
Whether or not any changes to ISAs are announced in the Spring Statement on 26 March, we are on hand to help you.
Read more about ISAs in our article Your ISA questions answered
