The beginning of the UK tax year brings personal finances into focus for all of us – as well as a changing cost landscape, with UK inflation rising in February 2017 to a Consumer Price Index high of 2.3% since 2013. Although prices are rising and set for Brexit uncertainty, the Bank of England is, however expected to keep interest rates low – which is bad news for savers.
So how do you make the most of any cash you want to invest? How much can you invest tax-free? What about ISAs and the Personal Savings Allowance – how does that work?
Here at Holborn Assets, we are proud to offer a range of proprietary investment portfolios suitable for long-term investment of large sums. With life savings involved, this type of product is the centrepiece – the most significant asset by far – in the entire financial plan of many of our clients. But that doesn’t mean that the smaller savings products and strategies aren’t important – quite the contrary. It’s a clichéd British expression, but it’s also true that if you take care of the pennies, the pounds will take care of themselves. Financial planning for family security is all about the details, which is why professional help matters.
ISAs vs. Personal Savings Allowance
With this new tax year, you can save almost five thousands pounds more with an ISA (Individual Savings Account) – with the maximum yearly investment limit raised from £15,240 to £20,000.
The introduction of the Personal Saving Allowance (PSA) in April 2016 has reduced the appeal of ISAs, because the PSA means that you can earn up to £1000 in interest every year without paying any tax anyway.
So how does the ISA limit (£20k invested a year) and the PSA limit (£1k interest earned a year) work together?
The HRMC currently views the two separately. So you can earn interest on up to £20,000 year ISA savings tax-free – as well as earn interest of up to £1000 a year tax-free from other investments under the PSA.
The introduction of the PSA in 2016 meant – say moneysavingexpert.com – that “95% of UK adults no longer pay tax on any savings – the biggest shake-up for a generation.”
Here at Holborn Assets we would urge you to seek professional help in pinpointing how this affects your finances personally. You might be missing out!
And the difference in what you can save tax-free could make all the difference in spending areas where you are under pressure.
ISAs were a Government initiative introduced in 1999 to support UK savers with tax-free savings accounts. This year sees the launch of the Lisa, the Lifetime Isa designed to support long-term savings, which tops up 25% on any consumer savings (max £4k a year) but charges a withdrawal charge of 25% on the whole sum, interest too, if it is cashed out before the age of 60 (or a deposit is put down on a house). This 25% early drawdown levy has meant that the Lisa has attracted limited support from providers of financial products.
Further savings support is offered by the Government in the form of the tax-free savings rate – introduced in April 2015 – which offers 100% tax relief on investment savings if your total annual income from your job and your savings interest is less than £17,000 (2016 – 2017: £17,500 unconfirmed).
Because of the PSA it is often it is the case that, for savings of under £20k, consumers are better off in terms of interest rates with the top-rate current account offered by their bank. That doesn’t mean that the cash ISA should be ruled out, though.
Because the ISA and PSA limits work hand in hand, the ISA can be used by big savers (or top-rate taxpayers) who have used up their PSA.
From our Dubai headquarters, Holborn Assets IFAs can reinforce your financial plan with any of a range of expat-friendly ISAs from the key global providers.