Are you making full use of your ISA allowance?

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It’s fair to say that the UK has a savings problem. According to Finder, one in ten Brits have no savings at all, while a third have less than £600. Perhaps more dauntingly, 41% of Brits don’t have enough money saved to live for just one month without income.

While the pandemic, or rather the lockdown that accompanied it, gave many of us an opportunity to put a little more money to one side, there are still plenty of improvement opportunities out there for budding savers. One of those is to make use of an Individual Savings Account, otherwise known as an ISA, which can help you to maximise your savings.

What is an ISA allowance?

An ISA is a savings account that is free from Income Tax and Capital Gains Tax. In simple terms, that means everything you save and earn through interest stays with you, with none of it going to the taxman. The only restriction on an ISA is the amount you can invest into in on a yearly basis, with the maximum amount currently sitting at £20,000

ISAs come in two basic forms – Cash ISAs that are offered by banks and building societies and Stocks and Shares ISAs that look at investment options. Additionally, you can also get Lifetime ISAs which help you save towards your first home and Junior ISAs that help you save for your children.

Why aren’t Brits using ISAs to their advantage?

The FT Adviser recently reported that fewer than half of Brits are currently making full use of their annual tax-free ISA. According to the report, of those with at least £50,000 in investible assets, only 48% have used their full allowance, while there are also considerable usage shortfalls in the case of pension allowances.

The problem seems to lie in a lack of awareness around the use of ISAs and their full potential. The report suggests that those who were currently making full use of their ISA allowances were more likely to have taken on financial advice than those who hadn’t.

What should you do to maximise your ISA allowance?

So, now you know about the hidden away saving potential in ISAs, what can you be doing to make the most of it? According to What Investment, you need to be aware of the following:

  • If you’re serious about saving or investing, maxing out the £20,000 allowance of your ISA should be your first port of call.
  • Note that couples each have their own allowance, meaning you and your partner could save up to £40,000 between you.
  • Don’t forget your Capital Gains Tax allowance that can be realised in any tax year to the value of up to £12,000.
  • You can move your ISA funds into stocks and shares when you feel comfortable to do so, so if you want to invest later down the line but not right away, that’s an option.
  • Junior ISAs (which can be opened by adults for children aged under 18) have been upped to £9,000 a year.
  • Consider utilising with-profit funds which can be held in stocks and shares ISAs. These funds hold back a proportion of gains during periods of strong market return, offering you additional capital guarantees and security.

It would seem right now that the ISA is the UK’s rather unintentional best kept saving secret. If you are looking to create a substantial savings and wealth management portfolio, an ISA allowance is undoubtedly the place to start – and you’ll be ensuring your money is headed in the most financially savvy direction possible.

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