Remember to Use Your ISA Allowance

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Individual Savings Accounts (ISAs) are tax-efficient savings vehicles that allow you to save and invest without having to pay income tax or capital gains tax. They can be a good way for people to start saving or to add to their existing portfolio of savings and investments.

The ISA allowance for the 2019/20 tax year is £20,000, of which £4,000 can be saved into a Lifetime ISA. Investors used to be able to save a maximum of half their allowance into a cash ISA, while those who decided to put less than this into a cash ISA could invest the balance into a stocks and shares ISA. However, under reforms introduced from 1 July 2014, you can allocate your entire ISA allowance of £20,000 across cash, stocks and shares, or any combination of the two. Moreover, you can transfer savings from your stocks and shares ISA's to your cash ISA's, and vice versa, and can also transfer your ISAs between providers whenever you wish, subject to your providers’ rules.

Even if you cannot afford to take advantage of the full annual ISA allowance, it is still worth putting away what you can via a regular savings plan, which can start from as little as £50 a month. Although you are not allowed to hold an ISA with or on behalf of someone else, you can open a Junior ISA for a child under the age of 18.

According to HM Revenue &Customs, the market value of adult ISA holdings stood at £585 billion at the end of the 2016/17 tax year, and around 11.1 million individuals subscribed to adult ISA's in that tax year. This was lower than the 12.7 million who subscribed in the previous tax year; the amount subscribed – £62bn – was about £18 billion lower, and average subscriptions fell by 13% on the previous year. This followed a large increase in 2014/15 when ISA subscription limits rose to £15,000. In comparison, subscriptions to Junior ISAs climbed from 738,000 in 2015/16 to 794,000 in 2016/17.

Above all, do not forget one of the golden rules of ISA investing – if you do not use it, you will lose it, so try to make the very most of your annual allowance if you can. Please note that levels and bases of, and reliefs from, taxation are subject to change.

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