UK consumers have until April 5th 2010 to use up their ISA allowance. These Individual Savings Accounts allow tax free savings in either cash or investment based products up to certain limits each year. Given that taxpayers will be liable for tax on interest and dividends made on standard savings and investments, it makes sense for them to use their ISA allowance wherever possible.
What are the Benefits of Using Individual Savings Accounts?
The major benefit of an ISA, whether used for investment or savings purposes, is that it gives consumers the chance to save/invest money without any liability for tax. For the 2009/10 tax year this allows individuals to:
- Save up to £10,200 if they are aged over 50.
- Save up to £7,200 if they are under 50.
ISA rules will change for the 2010/11 tax year allowing everyone to save up to £10,200.
If an individual has any existing savings or is planning on investing then using an ISA until they have used up their allowance simply makes sense. They will potentially see their money earn more as no tax will be levied on any profit they make.
What Kinds of ISA are Available?
There are two types of Individual Savings Accounts on offer. These are:
- Cash ISAs
- Investment ISAs
Consumers can use their allowance (or just part of it) in either or both types of account. Some may simply use a cash ISA to store savings and others may put their allowance in an investment based product. Some will split their money between both types which is fine as long as they stick to the ISA allocation rules.
Is it Too Late to Open an ISA for the 2009/10 Tax Year?
The tax year runs from the 6th of April to the 5th of April. The allowance given to each individual is available on an annual basis but can only be used for that specific tax year and cannot be carried over. So, those that have not yet started to use an ISA for the 2009/10 tax year can still do so but they must have an account up and running by the 5th of April 2010.
Those that want to get in before the deadline may need to move quickly. Banks and financial institutions usually get a lot of ISA applications towards the end of the tax year which can add to the time it takes to process applications. Those that don't make the deadline will lose their allowance for this tax year.
Even though time may be a little tight it is still worth thinking about how to get the best ISA products before choosing which route to take. Getting the best cash ISA may be about more than simply finding the best interest rate. Finding the best investment account may also need a little research as there are a variety of options and types of account to choose from.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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