Use your ISA allowance or lose out to the taxman
Savers could lose out on up to £403 million over the next tax year by not using their ISA allowances, a new report reveals.
According to unbiased.co.uk's Tax Action Report, many savers continue to ignore ISAs despite low interest rates making saving in a tax-efficient way even more important.
Instead, savers are sticking with traditional accounts and investments and losing chunks of their gains to the taxman.
Making the calculation based on the number of people with savings and investments, the research suggests that savers could be losing out on £376 million of extra income by not making use of their cash ISA allowance this year.
In addition, it estimates that investors can be losing out on another £27 million by not utilising stocks and shares ISAs.
"Even if you only have a little to put aside, saving a small amount regularly each month in a tax-efficient savings account can make a real difference over the long term," says Karen Barrett, chief executive of unbiased.co.uk.
"It is important for people to ensure they are making their savings work as hard as possible. By putting some basic tax planning in place, such as investing in an ISA rather than a standard savings account, they could optimise their savings without having to do very much," she adds.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.