Helen O’Hagan explores how clients could take advantage of generous limits available at tax year end within their ISA.
Due to their tax efficiency it’s well worth your clients taking advantage of the generous limits available each tax year within their ISA to help them build up their savings.
The current ISA limit of £20,000 is a generous amount which UK residents can place into an ISA. The junior ISA limit is £4,128 available to children under the age of 18.
Remember that monies held in an ISA wrapper do not suffer income tax nor capital gains tax thus making them very tax efficient.
ISA’s have evolved over the years and you now are able to invest into:
- A cash ISA
- A stocks and shares ISA
- An innovative finance ISA
- A lifetime ISA
But it’s not possible to subscribe to two (or more) of any of them in the same year.
The lifetime ISA was introduced this year to help 18 to 39 year olds (at 6/4/17) save for their first home and their retirement. The limit is £4,000 ( which is included in the overall £20,000) with a Government bonus of 25%. Beware that any withdrawals outwith the rules will be subject to an exit penalty applied by the Government.
There is also a help to buy ISA which is aimed at individuals who want to save to help them buy their first home where the Government gives them a top up bonus. This one is limited to up to £200 per month on top of an initial contribution of £1,000. It is merely a cash ISA.
In 2016 the rules for the flexible ISA were published These allow investors to replace cash withdrawn, with the replacement not counting towards the annual subscription limit. This gives investors added flexibility without losing out on any of their Annual Allowance. Please note that offering flexibility is optional for ISA managers. It is not available for junior or lifetime ISAs.
Don’t forget that your clients can invest their ISA contribution into life insurance policies, gilts (government stocks), authorised unit trusts and shares in OEICs. They can also invest their ISA into company shares which are eligible for enterprise investment schemes (EIS), venture capital trusts (VCT) and business property relief (BPR). If your clients have stocks and shares outside their ISA wrapper that they need to cash in to make use of their capital gains tax limit they can ‘bed and ISA’ them. The anti-avoidance rules don’t apply if you buy back the same stocks and shares through your ISA wrapper.
HMRC have also confirmed that with effect from April, an ISA owned by a person who dies on or after 6 April 2018 will retain its tax-advantaged status during the estate administration period. Surviving spouses and civil partners will also be entitled to subscribe additional amounts to their own ISA, equal to the value of the deceased’s ISA at the point it is closed, subject to a three-year backstop. At the moment, ISA tax advantages cease upon death and any subsequent interest or gains are taxable in the hands of the estate.
As you can see due to their tax efficiency it’s well worth your clients taking advantage of the generous limits available each tax year within their ISA to help them build up their savings.
Don’t forget to remind clients who leave their annual ISA subscriptions to the end of the tax year they need to be mindful that an ISA begins from the later of
- the date on which the ISA manager accepts the application form, and
- the date on which the subscription is made
More information can be found on PruAdviser in knowledge centre.
For more information and useful tools for tax planning at tax year end, take a look at our tax year end hub.