The earlier you invest, the longer your money is outside of the reach of the taxman
By investing earlier in the tax year, you could make sure that you are using your Individual Savings Account (ISA) allowance to its full advantage. The earlier you invest, the longer your money is outside the reach of the taxman and has the opportunity to work harder for you.
ISAs are virtually tax-free savings, which means that you do not have to declare any income from them, and you can use an ISA to save cash or invest in stocks and shares.
What can you save or invest in an ISA?
ISAs can be used to:
save cash in an ISA and the interest will be tax-free
invest in shares or funds in an ISA, any capital growth will be tax-free and there is no further tax to pay on any dividends you receive
Transferring money from cash ISAs to stocks and shares ISAs
If you have money saved from a previous tax year you can transfer some or all of the money from a cash ISA to a stocks and shares ISA without this affecting your annual ISA investment allowance.
Money saved in the current tax year:
savers are able to transfer money saved in the current tax year from a cash ISA to a stocks and shares ISA, but they must transfer the whole amount saved in that tax year in that cash ISA up to the day of the transfer
the money transferred is then treated as if it had been invested directly into the stocks and shares ISA in that tax year, the saver is then still able to save or invest the remainder of their £7,200 annual ISA investment limit in that tax year, including up to £3,600 in a cash ISA
from October 6, 2009, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for people aged 50 or over
from April 6, 2010, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for all ISA investors
How much tax will you save?
Interest from savings:
if you pay tax at the basic rate, outside an ISA you would usually pay 20 per cent tax (2009/10) on your savings interest
if you pay tax at the higher rate, outside an ISA you would usually pay tax at 40 per cent on your savings interest
if you pay the ‘saving rate’ of tax for savings, outside an ISA you would pay tax at 10 per cent on your savings interest
if you’re a basic rate taxpayer inside or outside an ISA you pay tax at 10 per cent on dividend income, this is taken as a ‘tax credit’ before you receive the dividend and cannot be refunded for ISA investments
if you’re a higher rate taxpayer you would normally pay tax on dividend income at 32.5 per cent, in an ISA you won’t get back the 10 per cent dividend tax credit element of this, but you will save by not having to pay any additional tax
Capital Gains Tax (CGT) savings
If you make gains of more than £10,100 from the sale of shares and certain other assets in the tax year 2009/10, you would normally have to pay CGT. However, you do not have to pay any CGT on gains from an ISA.
The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.