ISAs are a big part of many savers’ financial plans. ISAs allow people to put more into them which will be completely free of any tax charges. Any returns from an ISA, be it interest or investment gains, will not have any taxes levied. This includes both income tax and capital gains tax.
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There are currently four main types of ISAs which are cash ISAs, lifetime ISAs, stocks and shares ISAs and innovative finance ISAs.
Some may also have help to buy ISAs but these can no longer be opened.
Currently, the government has a limit in place that determines how much can be put inside these accounts.
For the 2019 to 2020 tax year up to £20,000 can be put into ISA accounts.
The tax year in the UK runs from 6 April to the following 5 April.
This means that savers have exactly four weeks from today to make the most of their ISA accounts.
Or if they haven’t opened one for the current tax year, they have about a month to open one and put money inside it.
ISA accounts can be opened within a number of companies.
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The government detail that it is possible to open ISAs with:
- Building societies
- Credit unions
- Friendly societies
- Stock brokers
- Peer-to-peer lending services
- Crowdfunding companies
- Other financial institutions
Each provider will have specific rules and procedures unique to them however so applicants will need to contact the providers directly for more information.
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Once a new tax year starts the annual allowance for ISAs resets.
This means that any unused tax benefits will be lost.
This could be especially problematic if the government decides to lower ISA allowances.
Generally, the government tends to increase the ISA allowance over time but they can just as easily lower it.
If the government decides to lower the allowance for the coming year, savers have a reduced tax incentive. While there is no obligation to fill an ISA to its absolute limit, it is generally advisable to put as much money in them as possible.
ISAs have other benefits on top of their tax perks. It is possible to take money out of ISAs without losing any of the tax allowances, meaning that consumers can move their money between different ISA accounts without fear.
Some people may wish to move their ISAs to take advantage of better interest rate offers from separate providers. This will not be an issue but caution should be taken if someone wishes to do this with a deadline looming.
The government detail that it can take up to 15 working days to process transfers between cash ISAs. In some cases it could be even longer, with non-cash ISAs taking up to 30 calendar days.
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