In the UK, each tax year every person aged 16 or over is eligible for a £3600 Cash ISA allowance. In many ways a Cash ISA is much like a normal savings account, but it has one major difference… the taxman can’t get near it. If you have money in a savings account and you are not using your Cash ISA allowance then you are further engorging the taxman’s pockets! The benefits of using an ISA’s are quite substantial; a basic rate taxpayer will pay 1/5th of a standard saving accounts interest in tax, a higher rate tax payer 2/5th. This means in an ISA at an equal interest rate a basic rate taxpayer will earn 25% more interest, and a higher rate taxpayer will earn 66% more.

Before you look at using an ISA it is advisable to make yourself aware of the rules which govern them. These can seem a bit ambiguous at first and they will probably raise many questions, but I hope to answer some of the most frequently asked here.

Each tax year you get a fresh £3600 allowance, so any old balances can remain in an ISA indefinitely. You can make withdrawals at any time out of your current or previous ISA’s without affecting the tax benefits, but the money cannot then be returned. For example, if you had £3000 in an ISA and then withdrew £2000, you would still only be able to pay a further £600 into the account or none at all if it is from an old ISA. Although your balance will now only be £1600, you have used all of your allowance.

A common question that gets asked is what happens if the interest pushes the balance above £3600. Thankfully the limit is for payments on only, so this isn’t anything to worry about.

Finally, if you are applying for an ISA that is to be used in the coming financial year you will be pleased to hear that most providers will process applications in advance, but you will only be able to use it once the new tax year has started. If you just want to move your current ISA, this can be done at anytime and isn’t effected by tax year start/end dates. For example you could transfer your current ISA to the new provider now and then start paying next years allowance into it from the first Monday in April, or you could pay it into a totally different ISA. This is entirely up to you. The only rule here is that you can’t have 2 open ISA’s in a single tax year, with the definition of “open” being an account that has had new money paid into it.

Put your savings in an ISA first, then switch to savings accounts when your allowance is maxed out. You can find the best ISA at moneysupermarket.com.

Amateur Journalist


Article from articlesbase.com

More Best Isas Articles

Tags: , ,

Tagged with: • •

Filed under: Best Isas

Like this post? Subscribe to my RSS feed and get loads more!