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ISA allowance for this tax year FY16 runs out soon

ISA allowance for this tax year FY16 runs out soon

The end of the current tax year, 5th April 2017, is approaching fast; the opportunity for savers to invest up to £15,240 in an ISA (Investment Savings Account) will end at the same time. Savers can invest their annual savings allowance of £15,240 in Cash or in Stocks and Shares ISAs. From 6th April 2017 the individual annual allowance for Cash or Stocks and Shares ISA investments increases to £20,000.

ISAs explained

  • Anyone in the UK aged 16 or older;
  • Can save or invest up to £15,240 per tax year;
  • Without paying tax on interest earned on their savings, or paying reduced tax rates on investments including dividend payments;
  • Once money or individual company shares are invested in an ISA they remain tax free, or tax-efficient.

Cash ISAs explained

  • Cash ISAs are savings accounts that are tax free, there are two types of Cash ISAs – i) fixed ISAs where the money attracts a higher interest rate on savings but cannot be withdrawn, and ii) easy access ISAs where money can be withdrawn without attracting interest savings penalties;
  • Interest on savings for top paying easy access ISAs have consistently out performed easy access savings accounts over the last five years.

However the return on a Cash ISA investment is affected by rates of inflation (RPI) and also the interest rate on savings – Savings Rate. Since the recessions of 1999 and of 2008 the Bank of England has kept interest rates low to control inflation and to encourage economic growth, which means that both RPI and the Savings Rates have been impacted. Cash ISAs are not as attractive now, as they were in 1999 – see below.

Cash ISAs 1999-2017

April 1999, the landscape for cash ISAs is very attractive:

  • Average ISA Savings Rate 6.32%
  • Inflation (RPI) 1.60%
  • Tax Free Real Returns 4.65%

April 2017 the landscape is very different:

  • Average ISA Savings Rate 0.46%
  • Inflation (RPI) 2.50%
  • Tax Free Real Returns -1.99%

 Stocks and Shares ISAs explained

  • Investors can transfer current tax year Cash ISAs into Stocks and Shares ISAs, provided the whole amount is transferred.
  • Investors are also able to transfer any previous tax years Cash ISAs into Stocks and Shares ISAs without affecting the current tax year’s ISA allowance.
  • Stocks and shares ISAs provide investors with a way to invest individual company shares and money in a tax efficient The savings in the ISA can be invested in unit trusts, open-ended investment companies (Oeics), investment trusts, government bonds and corporate bonds where there is growth potential meaning that the value of the investments can go up. (Though past performance of stocks and shares investments is not a guide to future performance). Where investors pay higher or additional rate tax the advantages for tax-efficiency of Stocks and Shares ISAs is significant.
  • Spouses can inherit their deceased spouses ISA allowance regardless of their own tax and personal savings allowances.

Using your ISA allowance – up until 5 April 2017

  • If you haven’t yet taken advantage of a Cash or a Stocks and Shares ISA in this tax year, you still can up to the allowance of £15,240 and
  • For this tax year ‘without tax’ means that if your savings earn £100 in interest you will keep all of the £100.

Contact an expert

We know that personal savings allowances, inheritance tax, and other investments are subject to change come 6 April 2017.

For expert, friendly and considered advice about current investments, please contact Hamish Gairns or Richard Smith at Marchwood IFA.

hamish@marchwoodifa.co.uk or richard@marchwoodifa.co.uk

Budget 2016 update

Budget 2016 update; good news for: savings, ISA investors, small businesses and landlords.

Savings and ISAs

In an effort to prepare for stormy economic conditions ahead the Chancellor has increased personal allowances, and the tax year savings limits on ISAs. He termed this “[acting now] so we don’t pay later”.

From April 2017:

  • A new Lifetime ISA will be available for adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive a top up bonus of 25% from the Government. Funds, including the Government bonus, from the Lifetime ISA can be used to buy a first home at any time from 12 months after the account is opened, and can also be withdrawn from 60 years of age to help with retirement.
  • The total ISA annual limit will increase from £15,240 to £20,000.

Income, Corporation and Capital Gains Tax

Income Tax:

  • For tax year 2016/17 the personal allowance will increase to £11,000 and for 2017/18 it will increase to £11,500.
  • For tax year 2016/17 the higher rate threshold, the level after which taxpayers begin to pay 40% tax, will increase to £43,000 and for 2017/18 it will increase to £45,000. The higher threshold is expected to reduce the numbers of individuals paying higher rate tax.

Capital Gains tax changes from April 2016:

  • For disposals on or after 6 April 2016 the highest rate of capital gains tax for individuals will reduce from 28% to 20%, and the basic rate will be reduced from 18% to 10%

From April 2020corporation tax is to fall from 20% to 17%.

Housing, property and the digital economy

In order to encourage commerce, the Chancellor took several measures to support small business and micro-entrepreneurs. Osborne also introduced tiered stamp duty for commercial properties, and looked at funding to help with housing problems.

From April 2017:

  • Homeowners and landlords that let out their properties on economy sharing platforms like Airbnb won’t need to declare or pay tax on the first £1,000 they earn on the platform in the tax year. The same is true for other entrepreneurs that trade different services or products on other sharing economy platforms.

Speaking specifically to boosting a micro-entrepreneur economy the Chancellor said: “We’re going to help the new world of micro-entrepreneurs who sell services online or rent out their homes through the internet”.

From 17 March 2016:

  • The Chancellor has reformed commercial stamp duty introducing tiered payments which; are linked to the value of the property. The new rates will be 0% on properties valued between: £0 to £150,000; 2% on properties valued £150,001 to £250,000; and 5% on any property valued at £250,001 or more. The Chancellor said the new system would raise an extra £500m a year with only 9% of transactions paying more stamp duty than before.

From April 2017:

  • Small business rate relief will more than double permanently – from £6,000 to £15,000. The threshold for the higher rate business rates will also be raised. This will see 600,000 small businesses paying no business rates at all from April 2017.

Sugar tax and other duties

  • Osborne is increasing duty on tobacco but freezing taxes on home produced alcoholic beverages such as beer, cider, whisky and other spirits.
  • Fuel duty is to be frozen for the sixth year in a row.
  • The Government will fund longer school days for those that want to offer more activities including extra sport. The funding for extra sports will partly come from the sugar tax or levy on the soft drinks industry. The levy has been introduced because of the increasing problem of child obesity. The levy will raise £520m and will be assessed based on the level of sugar content in soft drinks that are produced, and also the volume of soft drinks sales.

Tax avoidance measures for large corporations and the public sector

  • Multinationals that over borrow abroad, and deduct the interest bills against UK profits to reduce their tax bills will be targeted, as will as other tax loopholes.
  • The Chancellor said that he will shut down disguised remuneration schemes, ensuring UK tax will be paid on UK property development, and also that he will change the treatment of remote gaming providers as regards tax.
  • Osborne also warned public sector companies that they will have to ensure their employees pay the correct tax; rather than allowing them an advantage if they are paid through personal service companies.

Funding increases

  • A fund of £115m has been allocated to help the homeless and those sleeping rough.
  • Spending on flood defences is to be increased by £700m funded by a 0.5 percentage point increase in the insurance premium tax.

Don’t forget the ISA allowances for this tax year end on 5th April – use it or lose it!
It’s not too late to contact a Marchwood IFA today, to arrange a consultation. Call 01243 532 635 for friendly up-to-the-minute investment advice.

Tax limits on Cash and Stocks and Shares ISAs explained

With the end of the tax year looming, we take a look at tax limits on Investment Savings Accounts (ISAs) and explain why cash, and stocks and shares ISAs are not dead.

ISAs explained:

  • Anyone in the UK aged 16 or older;
  • Can save or invest up to £15,240 per tax year;
  • Without paying tax on interest earned on their savings, or paying reduced tax rates on investments including Capital Gains tax;
  • Once money or individual company shares are invested in an ISA they remain tax free, or tax-efficient.

Stocks and Shares ISAs and Cash ISAs explained:

  • Cash ISAs are savings accounts that are tax free, there are two types of Cash ISAs – easy access where money can be withdrawn without attracting interest savings penalties and fixed ISAs where the money attracts a higher interest rate on savings but cannot be withdrawn.
  • Interest on savings for top paying easy access ISAs have consistently out performed easy access savings accounts over the last four years.
  • Stocks and shares ISAs provide investors with a way to invest individual company shares and money in a tax efficient way. The savings in the ISA can be invested in unit trusts, open-ended investment companies (Oeics), investment trusts, government bonds and corporate bonds where there is growth potential meaning that the value of the investments can go up. Though past performance of stocks and shares investments is not a guide to future performance. The way in which Stocks and Shares ISAs are charged (paid for) can vary investors should check rates with their IFA. Where investors pay higher or additional rate tax the advantages for tax-efficiency of Stocks and Shares ISAs is significant.
  • Any capital gains made from investments in Stocks and Shares ISAs are tax-free. However, the UK annual capital gains allowance is £11,100 for the 2015/16 tax year; meaning that Stocks and Shares ISAs will only offer a capital gains tax benefit if the owner realizes a return in excess of the Capital Gains allowance in a single tax year.
  • Investments in corporate bonds and gilts in Stocks and Shares ISAs, earn tax-free free interest, meaning a saving of 20% tax for a basic rate taxpayer, or 40% for a higher rate tax payer or 45% for an additional rate taxpayer.
  • Investors are able to transfer a previous tax year Cash ISA into Stocks and Shares ISAs without affecting the current tax year’s ISA allowance.
  • Investors can also transfer current tax year Cash ISAs into Stocks and Shares ISAs, provided the whole amount is transferred.
  • Spouses can inherit their deceased spouses ISA allowance regardless of their own tax and personal savings allowances.

 

Tax year 2015-16 (ends 5 April 2016)

  • For this tax year ‘without tax’ means that if your savings earn £100 in interest you will keep all of the £100 and
  • If you haven’t yet taken advantage of a Cash or a Stocks and Shares ISA in this tax year, you still can up to the allowance of £15,240

 

Following on from our recent article about the London and Britain housing market we are also taking a close look at the new Help to Buy ISAs which were launched for first time buyers to help them save for a mortgage deposit. The Help to Buy ISAs differ from other ISAs because the government will add a 25% cash bonus on savings between £1,600 and £12,000 to help first time buyers save more.

 

Help to buy ISAs explained:

  • First time buyer definition: A UK resident aged 16 or over who has never owned or had an interest in a residential property, either inside or outside of the UK, whether it was bought or inherited.
  • First time buyers can save up to £1,200 in the first month, and then £200 per month after that.
  • The £200 per month saving investment can be topped up if missed, but cannot equal more than £2,200 in the remaining 11 months.
  • The State adds 25% tax free to whatever is in the ISA when you use it for a deposit. There are two exceptions to this: there must be a minimum of £1,600 in the ISA, and, the maximum the State would add would be £3,000 tax-free on a £12,000 ISA. If the ISA is worth more than £12,000 it can be kept as a savings account.
  • The current scheme will pay out as described until December 2030.
  • The accounts are individual, meaning that so long as every account holder qualifies as a first time buyer (see above) couples, or groups of first time buyers can lump savings together when the time comes to buy.
  • It can be used for any UK residential property up to the valued of £250,000 (outside of London) or up to the value of £450,000 inside London.
  • Unlike cash ISAs (which can be opened every tax year) Help to Buy ISAs are exclusive meaning that you may only have one.
  • Though you cannot open a cash ISA in the same tax year that you open a Help to Buy ISA, you may have both types of savings accounts including stocks and shares ISAs so long as they were opened in a different tax year to the one in which the Help to Buy ISA was opened.
  • You can take money out of the Help to Buy ISA if you are not buying a property at present and enjoy usual cash ISA benefits.
  • It is worth transferring savings for a deposit into a Help to Buy ISA because of the State tax free allowance.
  • You will have to ask your conveyancing solicitor to apply for the cash bonus when buying a property and transfer the funds from the Help to Buy ISA.
  • Parents, guardians and carers can help their children to save for a mortgage deposit with a Help to Buy ISA, however, the child (age 16 years’ old or above) must open the account themselves and also qualify as a first time buyer.

We know that personal savings allowances, inheritance and capital gains tax, and other investments are subject to change come 5 April 2016.

For expert, friendly and considered advice about investments, please contact Marchwood IFA today.

To check that your investment portfolio has adequate protection, please contact Hamish Gairns our life assurance expert.

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