Seven tips for using your ISA allowance

ISAs are one of the simplest ways to invest and save tax. Here’s some tips for investors looking to use their allowance before April 5th.

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  1. Rob Morgan
  1. Use your ISA allowance as far as you can

You can currently invest up to £20,000 a year with an ISA, often the first port of call for those looking to save tax. They are simple, flexible and tax-efficient. Gains realised on the sale of stocks and shares within an ISA are free from tax, and so is any income from dividends or interest.

Even if keeping your money outside the clutches of the tax man doesn’t seem relevant now, it might in the future. It could be worth planning ahead for when your wealth grows.

The ISA allowance is available to any UK resident over 18 and can be split between different types – the most common being Cash and Stocks & Shares. Charles Stanley Direct offers Stocks & Shares ISAs.

A Stocks & Shares ISA could deliver a higher return than Cash ISAs over the longer term but there is a risk the value of your investments could fall – especially in the short term.

  1. Don’t rush into an investment decision

If you're unsure where to invest in your Stocks & Shares ISA, you can always secure this year's allowance with cash now and decide later. There is no charge for holding cash but please note that no interest is paid currently and this should be only be considered as a temporary measure.

  1. Diversify

If you invest too much in one area you are reliant on its fortunes. Diversification can allow you to secure strong long-term returns but without excessive risk and reliance on one or more areas. It’s the process of dividing your investments between different investments, as well as different asset classes, such as shares, bonds, property, cash and others.

Investors often use funds to provide wide-ranging exposure to a market or asset class. For funds investing in shares, a single fund typically offers 50 to 80 holdings – ideal for the investor without the time or inclination to select their own. By holding several funds specialising in different areas, you can build a very diversified portfolio quickly and simply.

Read our introductory guide to funds.

  1. Consider your partner’s allowance too

If you are married or in a civil partnership it’s possible to organise your affairs efficiently so that tax-free allowances aren’t lost.

  1. Don’t forget the kids

Junior ISAs are a popular way for family and friends to build up tax-efficient savings and investments for a child. The tax benefits are the same as an adult ISA – no capital gains tax, and no further tax to pay on income.

Withdrawals are possible from the age of 18 when it automatically converts to an adult ISA, meaning the pot can be useful to help with the cost of university or a deposit for a house. This tax year’s Junior ISA allowance is £9,000 per child.

Find out more about Junior ISAs

  1. Pensions are also an option

Pensions are often a highly effective means of investing for retirement owing to the tax relief available on payments into them.

Currently, anyone under 75 with relevant UK earnings can receive tax relief when they make a contribution within the annual allowance to a personal pension such as the Charles Stanley Direct SIPP. 20% is added by HMRC and any further higher or additional rate income tax relief can be reclaimed – a potentially a simple way of reducing your income tax bill for the year.

Find out more about pension tax relief

  1. Don’t leave everything until the last minute

You can make payments into your Charles Stanley Direct ISA online using your debit card until midnight on Friday, 5 April. This is via the "Pay Money In" link under the "Manage my money" section of the site on your My Accounts page. We recommend that you don’t leave subscriptions until the last minute in case you encounter a problem making a payment, though.

Need help?

Please visit our FAQs or contact our Helpdesk at [email protected], on 0131 550 1234 or via Secure Message from your dashboard. With our special end of tax year hours, they will be available until midnight on 5 April.

Open a stocks & shares ISA

This information does not constitute advice or a personal recommendation and you are recommended to seek advice concerning suitability from your investment adviser. The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.

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