The 2020 to 2021 tax year will end on April 5 next month, with the 2021 to 2022 tax year beginning on the following day, April 6. Ahead of this deadline, which falls on the upcoming bank holiday weekend, investors have been warned they may want to take action very soon.
Alexandra Carr, Head of Personal Investor Services, UK, issued a reminder in the latest Vanguard newsletter.
“Our last newsletter of the 2020/21 tax year, inevitably, is a final reminder to investors to make full use of any tax allowances before they’re gone on 6 April,” she said.
“Our primary focus is on your ISA allowances, but it could also apply to your self-invested personal pension (SIPP) because even though there is more flexibility to carry-forward unused allowances, current rules limit this to three additional years.
“So technically this week is also your last chance to make full use of your 2017/18 pension savings allowance, if you haven’t already.”
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On April 6, among other allowances, the annual ISA allowance will reset.
In the current tax year, £20,000 can be saved by a person in ISAs – which stands for Individual Savings Accounts.
It will reset to a fresh £20,000 for the 2021/22 tax year.
The Lifetime ISA, one type of ISA, has its own annual limit of £4,000.
This maximum amount is included in the wider £20,000 annual ISA allowance.
Again, it resets when the tax year ends, meaning from April 6, Lifetime ISA holders will be able to pay in up to £4,000 for the tax year once again.
Ahead of the ISA season, Peter Hatton, TSB’s Head of Savings, shared some of his expertise on the topic.
“The main difference between an ISA and any other savings account is that it offers tax-free interest payments, which are in addition to the amount of tax-free interest allowed under the Personal Savings Allowance,” he commented.
“There is a limit to how much money you can put into an ISA in each tax year, which is called the ‘ISA allowance’.
“The ISA allowance for the 2021/22 tax year is £20,000. Most providers let you pay money into an ISA as often as you like, up to your ISA allowance, and many let you start saving with as little as one pound.”
So why is this time of year so important for ISAs?
“The tax year starts on April 6 and lenders often unveil new rates to attract savers around this time,” Mr Hatton said.
“Also, the £20,000 ISA allowance renews at the start of the tax year.
“So, if you’ve already saved up to the limit, you can start paying more into a new or existing ISA account from April 6.”
As many savers will be aware, there are other forms of savings accounts out there.
“The type of savings account you choose should be influenced by your savings plans,” Mr Tatton said.
“Fixed Rate Cash ISAs are great products if you’re happy to put your money away for a bit.
“But you may have to pay a withdrawal charge if you decide to take your money out early.
“If you think you’ll need to dip into your savings occasionally then you may want to consider an instant access account or an ISA which allows you to make withdrawals.
“Even if you don’t choose an ISA, the ‘Personal Savings Allowance’ means you can earn up to £1,000 of interest within the tax year, without having to pay tax on it.
“If you’re looking for a return and you’re happy to invest for the long-term then you could also consider a Stocks and Shares ISA.”
He added: “Though just remember, the value of investments can go down as well as up, and you could get back less than you invest.
“I’d advise taking stock of what you’re working towards and shopping around for the right product that best suits your needs.”