ISA allowance April 2017April 4th, 2016 by Dan Woodruff
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As the new tax year begins on 6th April 2017, each person has a new ISA allowance. Each adult investor now has an ISA allowance of £20,000 available to shelter from tax. We examine how you can make the most of your ISA allowances, including when you should sell from existing investments to fund your next ISA.
- The ISA allowance for April 2017 is £20,000 for adults
- The Junior ISA (JISA) allowance is £4,128 for April 2017
- The new Lifetime ISA (LISA) allowance is worth £4,000 from April 2017
- How to use your ISA allowance properly
- What we do for our clients at “ISA season”
ISA allowances for April 2017
Each adult has an annual ISA allowance of £20,000 for the 2017/18 tax year (from April 6th to the following April 5th). Since each adult has this ISA allowance, a married couple can each shelter £40,000 from tax.
You can shelter your savings or investments from tax, meaning that your ISA will grow free of income tax and capital gains tax. More importantly, your ISA income or capital withdrawals will also be free of tax – a useful advantage over pension plans.
The allowance for Junior ISAs for those aged under 18 is £1,128 per child, per tax year.
Lifetime ISA allowance
The new Lifetime ISA allowance is worth £4,000 for the tax year. This is only available if you are aged between 18 and 40, and forms part of your overall ISA allowance for the tax year. This means if you save the maximum £4,000 into the Lifetime ISA, you would have £16,000 remaining in your overall ISA allowance.
The Lifetime ISA must be retained until at least age 60, or until you buy your first home up to £450,000. You must keep the funds in place for at least 12 months. The main benefit is that the Government will give you a 25% bonus on top of your savings. A £4,000 contribution would generate an additional bonus of £1,000. The additional bonus does not form part of your ISA allowance.
How to use your ISA allowance properly
We often read that “ISA season” is in March as each tax year comes to an end. People rush to use up their ISA allowance before they lose the unused balance forever. Of course, if you have not used your ISA allowance fully by the end of the tax year and have the funds available to do so, then of course you should.
More importantly, for us, ISA season is in April each year. You should use your ISA allowance as soon as possible in the tax year. That way you get more out of your tax-free allowances – effectively a whole year of zero tax. Over a lifetime this will really add up.
Don’t forget that you can transfer ISAs, so your decision is not final. You can always set up a cash ISA quickly with your bank, and then transfer the balance within the tax-free wrapper to a new account later.
What we do for our clients at “ISA season”
Each year we do the following for our clients as one tax year ends, and the next one begins:
Remind you to use unused allowances
If you have not fully used up your annual ISA allowance for that tax year, we will prompt you to use the outstanding balance before the end of the tax year.
Set up ISAs for the new tax year
Provided you have taxable funds available, either in general investment accounts, or cash, we will arrange for your new ISA allowance to be completely used up at the earliest opportunity. This effectively moves taxable money into a tax-free environment, without the need to change anything else.
We agree the strategy in advance so that it can all happen in the background. You just agree the strategy with us, and we handle the administration. That way you can be sure that you will get the most from your ISA allowances.
Capital gains tax calculations
One overlooked aspect of making payments into your ISA from taxable accounts is the fact that sales from your investments can trigger capital gains. We first establish whether you have any other gains for the tax year (either from your investments, or perhaps from property sales). We then estimate how much capital gains tax may be payable if you make the recommended sales. If the sales would not generate capital gains above your annual allowance we usually make sales in the previous tax year (March). That way you retain your full annual capital gains allowance for the following tax year, which maximises your opportunity to save tax later.
This means that many of our clients maximise their tax savings by making sales in one tax year, but investments into their ISAs for the following tax year.
What should you do next?
Make sure you use up your ISA allowance as soon as possible, and as early in the new tax year as you can. If you would like to discuss ISAs further, please contact us. You can read more about tax planning with investments plus download our free guide on tax-efficient investing.