For those who have already maximised their ISA allowance it’s time to think about how they might shelter their cash from tax using their reset allowance in 2021/22.
This is what you need to know about your ISA allowance in the new tax year.
When is the deadline for 2020/21?
The tax year elapses at midnight on April 5.
Savers have until then to max out their allowance for the 2020/21 year.
Once the deadline has passed a saver’s ISA allowance will be reset for the new tax year.
What is the ISA allowance for 2021/22?
The ISA allowance limit for the upcoming tax year is £20,000, the same as it was in the 2020/21 year.
Unused allowance from the previous tax year does not roll over to the new tax year.
Can I split my money between different ISAs?
You can save up to £20,000 in one type of account or split the allowance across some or all of the other types.
You can only pay £4,000 into your Lifetime ISA in a tax year.
For instance you could save £15,000 in a cash ISA, £2,000 in a stocks and shares ISA and £3,000 in an innovative finance ISA in one tax year.
What different types of ISA are there and how do they work?
ISAs are tax-free savings or investment account.
They differ from other savings account by offering tax-free interest payments.
There are five types of ISA:
Cash ISAs: a standard savings account where there’s never tax to pay on interest. There are several types of ISA including, easy-access cash ISAs, notice cash ISAs and fixed rate cash ISAs depending on how often the saver may be required to withdraw money.
Stocks & Shares ISAs: a stocks and shares ISA allows you to invest money in funds, bonds and shares. These allow investors exemption from capital gains tax (CGT), bond interest tax and dividend income tax. There is risk involved, however, with savings not protected from losses, and these accounts are usually seen as long-term investments.
Lifetime ISAs: unlike other ISAs there is an allowance limit of £4,000 per year for a LISA. The government adds a 25% bonus to this ISA each month that you have saved. You can only open a LISA if you are aged between 18-39 and you can only withdraw if you’re buying a first home or 60 or over.
Innovative Finance ISAs: Companies who offer IFISAs lend your money to borrowers and businesses with the interest earned added to your account. If a borrower is unable to pay you back your savings will not be protected
Junior ISAs: A junior ISA allows you to save or invest up to £9,000 for your child. This is separate from your own £20,000 limit and the children are unable to touch the money until they turn 18.