ISA and Junior ISA deadline fast approaching
06/03/2014
As you may, or may not know, the 2013/2014 tax-year ends on April 5th.
This means that those who are yet to use their full ISA and Junior ISA allowances could effectively lose out on their tax-exempt savings. It’s for this reason that any additional savings you might have in a regular bank account should be deposited into an ISA or Junior ISA before the April 5th deadline, in order to make the most of your tax-exempt saving.
What is an ISA/Junior ISA?
An ISA, which stands for ‘Individual Savings Account’ is a savings plan that allows you to save in monthly premiums and/or lump sums, whilst protecting any growth in your savings from income and capital gains tax.
During each tax year, the government sets an allowance as to how much you are able to save in a ‘Stocks and Shares ISA’, where all growth in your savings is exempt from tax. For example, in an ISA you can save up to £11,520 for yourself in the 2013/14 tax year, whilst this will increase to £11,880 in the 2014/15 tax year.
Additionally, there is a child friendly version of the ISA called the ‘Junior ISA’, which is the successor to the ‘Child Trust Fund’ (CTF) and generally provides more positive returns for your investment.
The Junior ISA acts in exactly the same way as the regular ISA, except any savings are purely for children to receive as a tax-free lump sum on their 18th birthday. With a Junior ISA, you are able save up to £3,720 over the course of the 2013/14 tax year, with this increasing to £3,840 in the 2014/15 tax year.
Whilst you cannot open a Junior ISA for a child if they already have a CTF, it’s worth noting that the government recently changed regulations so that as of April 2015, any CTF can be transferred into a Junior ISA.
There are two different variations of the ISA and Junior ISA in the form of ‘Cash ISAs’ and ‘Stocks and Shares ISAs’. Dependant on your attitude to risk, you will need to consider which type of ISA you want to choose.
What’s the difference between ‘Cash ISAs’ and ‘Stocks and Shares ISAs’?
The difference between the variations is basically where your savings are invested, so for example a ‘Cash ISA’ provider would invest your savings purely in cash, therefore reducing any risk in your investment. A ‘Stocks and Shares ISA’ however is a little higher risk, as your savings are invested into a mixture of stocks and shares, private equities and cash.
You can have both a ‘Cash’ and a ‘Stocks and Shares ISA’ or ‘Junior ISA’, however the allowance on these do vary slightly in regards to the adult version of the ISA. The reason for this is that you are only allowed to save up to half of your allowance into a ‘Cash ISA’.
Basically, you are allowed to save up to £5,760 in a ‘Cash ISA’, or £11,520 in a ‘Stocks and Shares ISA’. However, if you prefer to spread your risk, you can combine a ‘Stocks and Shares ISA’ with a ‘Cash ISA’ to save up to the maximum £11,520 allowance… as long as you don’t deposit more than £5,720 in your ‘Cash ISA’.
Should I invest in a ‘Cash’ or ‘Stocks and Shares’ ISA?
This really depends on you, and your attitude to risk. ‘Stocks and Shares ISAs’ do not have a guaranteed ‘set’ interest rate in the same way that ‘Cash ISAs’ do, and the value of your savings can actually rise as well as fall, depending on how the ‘fund’ your savings are invested in performs.
Although this may sound complicated, there’s really not that much to worry about. Essentially those who are seeking higher interest rates with the chance of a higher return on their investment will generally choose a ‘Stocks and Shares ISA’ or ‘Junior ISA’, as these generally do outperform cash ISAs, although it is worth considering there is no guarantee this will be the case.
However, those who would like to reduce the risk of their investment would generally invest their savings into a ‘Cash ISA’ or a mixture of both a ‘Stocks and Shares ISA’ and a ‘Cash ISA’.
Need advice
Do you have some savings that you’d like to invest into an ISA or Junior ISA before the end of the tax year? Contact one of our advisers for expert advice by asking a question online or by calling 0800 092 1245
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