Move fast to beat the 2024-25 ISA deadline
ISAs are an easy way to safeguard your savings and investments from tax, but there’s been talk of changes ahead, so it’s particularly important to make the most of this year’s allowance before the deadline of 5 April.
In the current tax year, UK residents can put up to £20,000 in a tax-free ISA — this can either be in a Cash ISA, or a Stocks and Shares ISA, or a combination.
If allowances are maxed out every year, this can mount up to a significant sum before long. There’s no income tax or capital gains tax to pay on any gains, and the power of compounded returns makes ISAs yet more attractive.
‘ISAs are powerful investment tools,’ says Chartered Wealth Manager Paul Willans of AJB Wealth. ‘The key is to start as early in life as possible and keep building on these savings.’
It’s worth mentioning that the £20,000 allowance applies to each individual, so a couple can save £40,000 per year.
What are the ISA changes under discussion?
It’s reported that Chancellor of the Exchequer Rachel Reeves is considering limiting Cash ISAs to £4,000 per year. This is seen as a way of encouraging people to invest in the stock market, thereby boosting economic growth. Some feel this will have a greater impact on elderly savers, who are less able to make riskier investment choices.
Who can invest in a 2024-25 ISA?
Most ISAs are available to UK residents over the age of 18. Parents or guardians can open a Junior ISA for children under 18. Those aged 18 to 39 can open a Lifetime ISA to help fund house deposits and retirement, and benefit from government contributions.
Can you have more than one ISA?
Yes. You can split your £20,000 ISA allowance across different types of ISAs in a single tax year. New rules introduced in 2024 mean that you can also hold and contribute to more than one ISA of the same type within the same tax year. That means you can be more strategic in your choices. For example, you might have one Cash ISA offering instant withdrawals, plus a Cash ISA with a higher interest rate but requiring notice for withdrawals.
What are the different ISAs available?
Cash ISAs
A tax-free savings account. This is an efficient way of keeping funds you may need to draw on. See the section on Flexible ISAs below.
Stocks and Shares ISAs
This allows you to invest in a range of assets, such as shares, bonds and ETFs. Dividends and capital gains are free from tax.
Lifetime ISAs (LISAs)
Designed to help those under 50 to save for their first home or retirement. You must be aged 18 to 39 to open a Lifetime ISA and can make contributions of up to £4,000 a year until the age of 50. Contributions are topped up with a 25% government bonus. The £4,000 limit counts towards your annual ISA limit (currently £20,000).
You can withdraw funds to:
- Buy your first home, if the property is worth £450,000 or less
- When you reach the age of 60
- If terminally ill, with less than 12 months to live.
In other circumstances, you pay a withdrawal penalty of 25% — allowing the government to recover its bonus.
Junior ISAs (JISAs)
Parents and guardians can open Junior ISAs for children under 18, with an annual allowance of £9,000. This can be a Cash ISA or a Stocks and Shares ISA, or a combination of both. When the child reaches 18, the junior ISA automatically converts to an adult ISA, and the ‘child’ can withdraw funds.
Innovative finance ISAs (IFISAs)
Enables tax-free returns from peer-to-peer lending or crowdfunding investments.
Flexible ISAs
This newer type of ISA allows you to withdraw and replace money within the same tax year without affecting your annual £20,000 allowance. Your ISA provider can tell you if your ISA is flexible.
In conclusion: your 2024-25 ISA
ISAs are a versatile and tax-efficient way to save and invest. They offer various options to suit different financial goals, from simple savings to more complex investments. However, it’s important to understand the rules and potential risks associated with each type of ISA. Professional advice from a wealth manager or financial planner will ensure that you make the most of your investments.
AJB Wealth is well placed to help with all aspects of financial planning and investment. To discuss your situation, please book an exploratory meeting, or call us on 01428 774 070.
Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without advice and this company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. It’s important to remember that investments can fall, as well as rise. And, in the event of early encashment, you may receive less back than your original investment.
