5 Reasons Why You Should Use Your ISA Allowance Every Year
Unless you are a high paid executive who can afford the best advisers and lawyers there are precious few tax breaks available to mere mortals such as you or I.
However, one which the government have shown no sign of closing is the humble Cash ISA (Individual Savings Account). For the current 2012/13 tax year each person in the UK can put up to £11,280 into ISAs, of which £5,640 can be held in a Cash ISA.
£5,640 we hear you say, that isn’t much, I won’t bother, it’s not worth the hassle!
Wait, not so fast!
Think again, here are our five reasons why you should use your Cash ISA allowance each year.
1) The amount isn’t actually that small, sure it would be more exciting if the government allowed you to put your full ISA allowance into Cash, but at the moment you are stuck with the £5,640 limit. Remember though, that the limit, or allowance, is for each person. Therefore for a husband and wife, that’s over £10,000 of savings that each year you can from tax on the interest. Over 10 years you could have put well in excess of £100,000 away, with all the interest paid to you tax free
2) There are very few other options which mean no tax is taken off your interest. National Savings & Investments have withdrawn many of their most popular products, leaving Premium Bonds, which pay a relatively poor rate of interest. To be honest, in terms of tax privileged savings options, that’s it, other than of course a Cash ISA
3) There’s no denying that interest rates are poor at the moment, which might lead some people to not bothering with their Cash ISA each year, after all, how much tax can you save when the interest rate is so low? Whilst there is some truth in this argument, once the new tax year starts you’ve lost your previous year’s ISA allowance and interest rates can’t stay this low forever. It therefore makes sense to use your allowance each year and bide your time until interest rates rise. You won’t regret using your ISA allowance when interest rates rise and you start to see the full benefit
4) Cash ISAs can make an excellent alternative to pension planning. We all know pension contributions qualify for tax relief, but there are downsides, the money can’t be accessed until 55 at the earliest and any income you take is subject to tax. An ISA can be an ideal complement to a pension, sure you don’t get tax relief, but you can access all your savings without restrictions and any income you take is tax free, a huge advantage over a traditional pension
5) It’ll make you think twice about spending your capital. One you have taken money out of an ISA you can’t put it back in, unless of course you have unused allowance. If you take money out you will lose the tax advantages, this can make people think twice before spending the money leaving savings intact for the future
Yes, the Cash ISA allowance looks relatively small on its own, but hopefully we have shown you why it should form the cornerstone of your savings and should be the first place you make any additional savings each and every tax year.
