Don’t miss out on your 2013/2014 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 2013/14 ISA allowance lets you save up to £11,520 in an ISA between 6th April 2013 and 5th April 2014 without paying any tax on the income or capital gain it generates. If you do not use your 2013/14 allowance by 5th April 2014 you lose it. It’s as simple as that.

How much can be invested in cash and how much in stocks and shares?

Up to half the allowance can be in cash with the balance in stocks and shares. So if you decide not to invest any cash in an ISA this year, you have the full £11,520 to invest in stocks and shares. Or you can invest £5,760 in cash and £5,760 in stocks and shares. 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.

For example the 3 year deposit plan is popular with our customers who are looking for a higher return than current Cash ISA savings account interest rates. It offers the potential of 12% tax-free return over 3 years if the FTSE 100 is higher than initial index level after that term. If the FTSE 100 is not higher than its starting point after 3 years then you are guaranteed to get back your original capital.

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.

Look out for the deadline: for this Structured Deposit Account, there is an ISA transfer deadline of 4th April 2014. So don’t delay; contact us today about how to make the best use of your tax-free ISA allowance!

Why not set up next year’s ISA early?

Now is also the opportunity to take advantage of next years ISA allowance early. Many providers allow you not only to top up this years ISA but set up next years ISA to start immediately from the beginning of the new tax year (6th April). In line with inflation next year’s allowance will be £11,880.