It’s that time of year again! With the end of the tax year on 5th April 2010 fast approaching, now is your last chance to snap up this year’s allowances for tax-free savings in Individual Savings Accounts (ISAs).
ISAs offer considerable tax advantages when compared to savings with your bank or building society. By placing your hard-earned savings in an ISA, you ensure that they are working harder for you.
ISAs come in two types, the cash ISA and the stocks and shares ISA. The cash ISA offers completely tax-free saving, with the certainty that your money is as secure as if it were in a standard bank account.
The stocks and shares ISA offers tax-advantaged savings (although not totally ‘tax-free’, as the taxman does take a small levy on your earnings in the account). While carrying a higher risk than the cash alternative, the stocks and shares ISA may achieve a higher return than cash, particularly if you can leave your money invested for a 10-15 year minimum term.
Your ISA allowances this tax year, which can still be taken up until April, differ according to age.
If you are under 50, your total ISA allowances are £7,200. You have the option to split your savings, with £3,600 for the cash ISA and £3,600 for the stocks and shares ISA. Alternatively, if you do not have a cash ISA, you can invest the whole £7,200 in the stocks and shares ISA.
As from 6th April 2010, your total ISA allowance will rise to £10,200 per year, with the same conditions as above – one half (£5,200) in the cash ISA, one half in the stocks and shares ISA, or the entire sum in stocks and shares if you wish.
As the above implies, it is not possible to invest more than half your annual allowance in the cash ISA.
If you are over 50, you have a head start on the rest of the population. You are already entitled to the higher £10,200 allowance, and can take advantage of it immediately. Better still, that kind old taxman has included you, even if you are only 49, but will be turning 50 between now and April 5th. You can avail of the new ISA allowances of £10,200 right away as well.
