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Use it, don’t lose it!

  • By Malcolm Anderson
  • Published 01/30/2012

Unused ISA allowances are lost forever when the tax year ends

We may have just started the New Year but, before we know it, the end of the tax-year will be upon us (5 April 2012). If you haven’t already fully utilised your 2011/12 ISA allowance of £10,680, you may wish to consider doing so as any unused allowance cannot be carried forward to the following tax year.

ISAs are a very generous concession from the taxman. Your investment return is fully sheltered from both income and capital gains tax. Over the years, the tax-efficiency of an ISA can significantly boost your return.

Here’s a brief summary of the ISA rules for 2011/12:

. You can invest up to £10,680 in a Stocks & Shares ISA (assuming you are a UK resident aged 18 or over)

. Alternatively, you can invest up to £5,340 in a Cash ISA and up to £5,340 in a Stocks & Shares ISA

. ISAs are for individuals only, so you cannot invest in joint names – however, this does mean a couple can invest up to £21,360 if they both use their individual allowances

. To qualify for the ISA allowance in this tax year all ISAs must be opened by the end of the tax year on 5 April 2012

An even bigger ISA allowance for 2012/13!

The great news is the ISA limit now rises each year in line with inflation (Retail Prices Index). This means that you will be able to invest up to £11,280 in an ISA from 6 April 2012 (£5,640 in a Cash ISA).

Don’t forget, up to £3,600 can now also be invested within a new Junior ISA. So, if you have a child, grandchild or a friend who is under 18, you can invest in a tax-efficient way on their behalf (assuming they are a UK resident and haven’t taken out a Child Trust Fund).

Tax savings and eligibility to invest in an ISA or Junior ISA will depend on personal circumstances. All tax rules may change in future. The value of investments in an ISA or Junior ISA can go down as well as up and you or your child could get back less than you invest.

Don’t forget your SIPP allowance

In addition to an ISA, almost everyone in the UK under the age of 75 can invest in a tax-efficient Self Invested Personal Pension (SIPP). This can be a great way to save for your retirement because you receive tax relief on your contributions. Basic rate tax relief is automatically given and so if you invest £8,000 the government adds £2,000 more (higher rate taxpayers can claim up to a further £2,000 through their tax return, although special rules apply for those earning over £150,000). In each tax year you can contribute up to 100% of your relevant UK earnings (including tax relief) into a pension plan, subject to an annual allowance of £50,000 for 2011/12. This limit applies to contributions paid by you or by someone else on your behalf.

In addition to tax relief, investments within a SIPP grow free from income and capital gains tax. What’s more, when you begin to take benefits from your SIPP in the future, you can take 25% of your total fund as a tax-free lump sum.

Please note that eligibility to invest into a SIPP and the value of the tax savings to you will depend on individual circumstances and all tax rules may change. As a SIPP is a pension product you will not be able to withdraw money until you reach age 55.

About the Author: Malcolm Anderson: independent journalist writing about the ISA allowance.

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