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Individual Savings Accounts are one of the most tax efficient ways to save your income. With the new tax year a few months away now is the perfect time for you to review data of your personal tax and businesses to ensure that you have utilise all available tax allowances and reliefs in the ongoing tax year. Doing so will also help you in planning for the tax year ahead.
Our tax experts here at IBISS & CO have notified all allowances and tax reliefs that can slash your tax bill considerably, and that too in a legal way. So, stay with and save your hard-earned money.
Understanding individual savings accounts
ISAs are the most tax-efficient way of saving your income. When completing a tax return, you are not required to disclose any Individual Savings Accounts income, interest, or capital gain on it.
The 4 different types of Individual Savings Accounts are:
1. Cash and Stocks & Shares ISAs
A UK resident can invest an annual allowance of up to £20,000 in ISA annually. This allowance can be split between a Cash ISA and a Stocks & Shares ISA based on your preference.
Reach out to our tax advisers for a 15-Minute Free Call.
2. Junior ISA:
A parent, grandparent, or guardian sets a Junior ISA as a long-term saving account for their child’s (ren) future. It can be held both in stocks and shares. The annual threshold for the Junior ISA is £9,000.
- Available to children under 18 who are not eligible for Child Trust Fund.
- You can also transfer an existing Child Trust Fund into Junior ISA.
3. Help To Buy ISAs:
A Help-To-Buy ISA allows you to save as much as £200 per month whereas the state adds a tax-free 25% bonus on whatever you have saved. However, the maximum threshold of tax-free bonuses from the state is £3000. The cherry on the top? Interest that you earn on Help-To-Buy ISA is tax-free.
Note
There’s a twist here. You only earn a tax-free bonus from the state when you use this ISA as a deposit for your 1st home. A bit complex?
4. Lifetime ISAs
Lifetime Individual Savings Accounts is used for 2 purposes: buying your 1st house or saving it for a later part of life.
- To be eligible for opening a Lifetime ISA one should be either 18 year-old or under 40 years.
- In Lifetime ISA you can deposit as much as £4,000 annually until you are 50 year old.
- The state is going to add a 25% bonus annually with a maximum threshold of £1,000 annually.
- The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2024 to 2025 tax year.
Why Include ISAs in Your Year End Tax Planning?
Tax Efficiency: The returns on ISAs are fully tax-free, and it is an excellent way of saving for the future without adding to your tax bill.
Flexible Investments: You can pool money across various ISAs based on the different goals and risk you can bear.
Deadline: ISA allowance is on a use it or lose it basis. Therefore you must utilise your full allowance by 5 April 2025 to ensure you get maximum benefits.
Example
You are already at the risk of crossing the Personal Savings Allowance (PSA) for taxable savings income, and ISAs can guarantee that your savings will not be taxed. Higher rate taxpayers with a PSA of £500 or additional-rate taxpayers with no PSA can be highly benefited by ISAs.
Get Expert Advice
To learn more about Year End Tax Planning & ISAs and to ensure you’re making the most of available tax benefits, reach out to our experts at IBISS & CO for a 15-Minute Free Call. IBISS team here to help you optimise your savings and reduce your tax liabilities.
