Financial Matters

Saving tax efficiently. Why wouldn’t you?

With the end of the tax year fast approaching, have you utilised your ISA allowance for the current tax year?

We believe, ISAs continue to be one of the most tax-efficient ways to help you realise your financial goals.

There are different types of ISAs from which to choose. But with interest rates at historic lows – and cash earning virtually no interest on your savings –you may wish to consider opting for a stocks and shares* ISA.

Don’t forget though that while stocks and shares ISAs offer the possibility of higher potential returns than cash, the risks you are taking by investing in the stock market are higher too and you may not get back your original investment.

Why are ISAs tax efficient?

• You may have heard of the term ‘tax wrapper’ before. The wrapper effectively protects the underlying funds in which your ISA is invested • So, you don’t have to pay any capital gains tax on any profits you might make from the rise in company share prices within your underlying funds • Nor do you pay any tax on interest earned from any government bonds (effectively IOUs for which the lender receives a fixed amount of interest from the government over a period of time) in which you may invest • And any dividends you may receive from companies are free from tax too

Because they’re so tax efficient, the government limits how much you can save in any one tax year but the ISA allowance for the current tax year 2021/22 is £20,000.

A date for your diary – 05 April 2022

You must invest your ISA allowance by 5 April –the end of the tax year. As you can’t carry any remaining allowance forward into the next tax year (which runs from 06 April 2022 to 05 April 2023) you’ll lose any unused allowances. With each new tax year, however, your ISA allowance is renewed.

The kids will thank you … eventually. Given the current cost of university fees and housing, you may want to start building a nest egg for them sooner rather than later. In terms of tax-free saving, the JISA works along the same lines as the ISA with the key exceptions: • The allowance is £9,000 for the current 2021/22 tax year • The money is locked away until your child turns

18

• Only parents or guardians can open a JISA (although grandparents and friends can generously pay into them) Happy tax-efficient investing!

*Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest. Recommended investment period: medium to long term, ideally five years or more.

It’s important to remember that the way the government treats tax on ISAs may change in the future. The value of the tax advantage depends on your individual circumstances. Source:https://www.legalandgeneral.com/investments/invest ment-content/saving-tax-efficiently-why-wouldnt-you/

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