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Make the most of your ISA allowance – Time is running out

On 6th April 2013 the new tax year begins. Among many other things, this means that your ISA allowance is renewed for another twelve months. For those of you who have not maximised your ISA allowance in 2012/2013, or who are planning to open an ISA, it is key to try and put as much as possible away before the start of the new tax year.

This is particularly important for those who have either the maximum ISA limit to invest, or those who have already invested close to the limit. If you have for example, £23,000 as a lump sum you are looking to invest in an ISA, it is important that you open an account before the deadline on 5th April. This is because if you fail to do this you will only be able to save a maximum of £11,520 into an ISA over the coming year. Alternatively if you utilise this year’s maximum allowance of £11,280 before the deadline, and combine the two year’s allowances, your allowable ISA savings will amount to £22,800.

Here are a few facts about ISA’s:

- There are two types of ISA – cash and stocks and shares.
- The maximum you can save in a cash ISA in 2013/2014 is £5760
- The maximum you can save in a stocks and shares ISA in 2013/2014 is £11,520
- However you can invest in a combination of both cash and stocks and shares ISA’s

Why invest in an ISA?

There are different ways of investing your money other than going through an ISA provider, and you can easily invest in a cash savings account or your choice of stocks and shares yourself. However what an ISA does is throw a tax umbrella over your savings. This means there is no tax payable on capital gains when you dispose of your investment. Being tax-exempt, ISA’s help you to maximise your savings potential, leaving more money for you, and giving less to the taxman.

Cash or Stocks and Shares

This is a debate that has alive as long as the ISA, and in short there is no answer. It really depends on you and your attitude to risk. This is because stocks and shares ISA’s do not have a set interest rate in the way cash ISA’s do. The value of the fund in stocks and shares can fall as well as rise depending on the performance of the industries and funds which have been invested in.

This may sound complicated, but it really isn’t. Typically those who are seeking higher interest rates with the chance of a higher return on their investment will choose stocks and shares ISA’s. And normally stocks and shares ISA’s do outperform cash over the longer term, although it is worth considering there is no guarantee this will be the case.

The Junior ISA

The Junior ISA (JISA) was introduced in November 2011 as a method of using the same advantages of the normal ISA to save for those under 16. The JISA limit for the coming tax year 2013/2014 will be £3,720, and currently stands at £3,600.

The same rules apply in that you cannot go over that limit, meaning any money not invested before 6th April will limit your available savings over the combined tax years. Junior ISA’s can be opened for any child aged under 18 who do not already have a Child Trust Fund registered to them. They are a simple way of saving for your children’s future, whether you have emphasis on a university education or getting your children on the property ladder, a Junior ISA can help you to save a nest egg to set them on their way.

So don’t hang around. Apart from anything else the earlier you start to save, the earlier your money will be put away under that tax umbrella, and the sooner you will benefit from any potential growth.

For any more information on saving in an ISA, and how to start saving before the deadline, please contact out advisors who will be happy to help.

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