Don’t let your ISA allowance slip away!

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What is my ISA allowance?
ISAs – or Individual Savings Accounts to give them their full name – are a tax-efficient way of holding cash, shares, bonds and collective investments such as unit funds. The 2014/15 ISA allowance lets you save up to £15,000 in an ISA between 6th April 2014 and 5th April 2015 without paying any tax on the income or capital gain it generates. If you do not use this year’s allowance by 5th April 2015 you will lose it. It’s as simple as that.

How much can be invested in cash and how much in stocks and shares?
If you wanted to, you could invest £5,000 in a cash ISA, and £10,000 in a stocks & shares ISA. Or the other way around. Or any combination you like, as long as your tax free ISA savings in the 2014/15 tax year don’t exceed £15,000. It all depends on your attitude to risk and return. Currently, cash savings accounts are paying historically low rates of return, whereas stock market indices are rising. But there is no guarantee that things will stay that way.

Can I use ISAs to save for retirement?
Over time you can build up tens or even hundreds of thousands of pounds in ISAs, which are often seen as a more flexible way of saving for retirement than pensions can provide. You should always take expert advice on the relative merits of ISAs and pensions for retirement planning.

What’s the best ISA?
As with most financial affairs, it pays to take independent financial advice from experts in investing your money wisely. Here at Marchwood IFA, based in Chichester, we have access to a number of Structured Deposit Accounts, which are essentially Cash ISAs. They have all the same protection that you would get from High Street bank account, up to £85,000 protection under the Financial Services Compensation Scheme.

We have found that many of our customers have transferred their existing Cash ISA accounts with the High Street banks to this as they are capital safe products, so there is no risk of losing the money you are investing. The only real risk is that the FTSE doesn’t increase in value and so you receive no return on your investment over the investment term.

Why not set up next year’s ISA early?
Now is also the opportunity to take advantage of next year’s ISA allowance early. Many providers allow you not only to top up this year’s ISA but set up next year’s ISA to start immediately from the beginning of the new tax year (6th April). In line with inflation next year’s allowance is currently set at £15,240, although we’ll keep you updated if there are any changes to ISA legislation announced in the Chancellor of the Exchequer’s Budget on 18th March.