You have until the 5th of April to make the most of your ISA allowance 2022/23. In order to maximize your assets, you should start thinking about how you’ll use your allowances in the upcoming month.
For the 2022/23 tax year, you can add up to £20,000 a year into each adult ISA. The allowance is for individuals; so if you are planning with a partner, it’s worth noting that both of your allowances will be available.
According to government statistics, around 12 million adult ISAs were subscribed to during the 2020/21 tax year—making them a popular way of investing or saving money. In total, their combined cash value stood at around £687 billion.
If you’ve yet to make use of your ISA allowance for the 2022/23 tax year, here are four reasons you should review your deposits.
1. You could access a higher rate of interest with a Cash ISA allowance for 2022/23
If you’re looking to save, a Cash ISA could be an attractive option because of the higher interest rate it offers compared with regular savings accounts.
As interest rates have risen, it is worth checking whether your Cash ISA provider offers a competitive rate. You may be able to negotiate with the company or find another investment firm that will offer you more favourable terms.
You could opt for a Cash ISA with a fixed term in return for a better rate, but you wouldn’t be able to withdraw your savings during that time; so it’s important to consider what you’re saving up for.
If you’re an additional-rate taxpayer or have exceeded your Personal Savings Allowance for the current tax year, a Cash ISA can still be beneficial from a tax perspective. Interest earned on cash held in an ISA isn’t liable for Income Tax.
2. ISAs offer a tax-efficient way to invest
Investors can benefit from Stocks and Shares ISAs. You don’t need to pay Capital Gains Tax on investment returns when investing through an ISA—this can reduce your tax liability and help your money go further.
When taking advantage of your ISA allowance 2022/23, you should invest within a long-term time frame and understand what level of risk is appropriate for you.
3. If you save with a Lifetime ISA (LISA), you could benefit from a 25% bonus
LISAs are not right for everyone, but they can be effective in certain instances—including if you’re saving money to purchase your first home.
You can only open a LISA if you’re aged between 18 and 40. You can then deposit £4,000 in the 2022/23 tax year—and receive a 25% government bonus on those contributions —which means you could get an extra £1,000 per year to save or invest.
But, if you withdraw or transfer the money to another type of ISA before you’re 60 for any reason other than homebuying, you will face a 25% charge. This means you could lose the bonus as well as some of your original savings. Be sure to do your research and think carefully about what you’re saving for and the alternatives before you use a LISA.
You can choose a Cash LISA to earn interest on your deposits or a Stocks and Shares LISA if you want to invest. This would be a great way to utilize your ISA allowance 2022/23.
4. If you don’t use your ISA allowance 2022/23, you will lose it
Finally, you cannot carry any unused ISA allowance into a new tax year. If you don’t use it before the 5th April 2023 deadline, you’ll lose it. By reviewing your savings or investing plans now with this in mind, you can maximize your ISA allowance.
Are you better off saving or investing your ISA allowance?
Even though a Cash ISA may seem safer as your money is not exposed to investment risk, inflation can rapidly erode the value of your savings. As a result, you should consider if saving or investing is right for your goals.
FTAdviser reports UK savers storing their money in Cash ISAs are experiencing wealth erosion at its fastest pace in four decades. This is due to high levels of inflation, with interest rates aren’t matching. The report estimates that when compared to inflation, savers are facing a gap of £26.7 billion.
In contrast, investing could help the value of your savings keep up with inflation. However, returns cannot be guaranteed and investing isn’t always the right option.
In order to figure out if saving or investing is the right choice for you, you need to understand where your goals are and how far away they are.
Contact us to talk about how to use your ISA allowance 2022/23
If you want to talk to a financial planner about how to get the most out of your ISA allowance for 2022/23, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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