By Simon Vincent, Senior Accountant at Hive Business.
Everybody knows about ISAs. In fact, it’s probably where most of us instinctively look to put our savings. That label of tax free savings is simply irresistible.
What you probably don’t know though, as there’s been little publicity, is that pretty much all savings are now tax free for most us.
You’ll be used to being told that your bank interest has been paid to you net of tax, but since 5 April 2016 this is now paid gross; no tax is deducted. From now on, you’ll only pay tax on your interest if you’re an additional rate tax payer, or have interest exceeding the new Personal Savings Allowance (£500 for higher –rate tax payers, £1k for everybody else).
It won’t have gone unnoticed that interest rates have bombed. This is especially true for ISAs. Most of us won’t be earning interest above this savings allowance, so we’re not paying tax on our interest.
Your normal ISA then, is dead. They probably have been for a long time. Even before tax-free savings, interest rates in ISAs were so low that other savings methods were more lucrative even after paying tax.
New cash ISAs
The government have tried to rejuvenate ISAs recently, firstly with the Help-to-buy ISA (which didn’t help) and now the Lifetime ISA.
No doubt you have heard all about this one, which essentially gives you £1k for every £4k you save towards retirement or as a first-time buyer. This sounds great, but it would appear that nobody told the banks. At the time of writing, there’s merely a handful of providers none of which being your traditional high street bank. Most of them aren’t even planning to offer these.
Furthermore whilst this is great for first-time buyers, as retirement planning a pension could be better.
Stocks-and-shares ISAs
Perhaps a “stocks-and-shares” ISA appeals? Instead of saving cash and receiving tax-free interest, your cash is invested into, among other things, shares. These receive tax free dividends and CGT free growth.
Whilst growth here is good (actually hitting a 15.8% average last year), in reality the limited amount you’re allowed to save in an ISA (£20k p.a.) means that’s any dividends or capital growth are likely to be covered by your personal allowances in any case. This is a similar issue to cash ISAs, then.
Stocks and shares ISAs are very much alive and kicking but should be looked at as a genuine investment opportunity with a tax free benefit. I wouldn’t be looking here purely to save tax.
Get in touch on 01872 300232 or email hello@hivebusiness.co.uk.
