14:15 10 March 2013
Individual Savings Accounts, or ISAs,are one of the UK’s strategies to encourage taxpayers to save money that they can use for the future or once they hit retirement. These were introduced in April 1999 and they’re great vehicle to avoid handling over more tax to the government.
There are two types of ISAs; these are cash and stocks and shares ISAs. However, in this article, let’s focus on cash ISAs.
Once you’re done paying your tax on your salary, you can go ahead and deposit money into your cash ISA. The limit is £5,760 per year. The money that you placed in your ISA will continue to grow and yield tax-free interest and capital growth - as long as you do not withdraw it.
Cash ISAs offer more benefits compared to standard savings account, whichare taxed at 20per cent. If you’re a higher-rate taxpayer, you’ll have to pay 40per cent of your interest to tax. As the interest that you earn from cash ISAs is tax-free (as long as you don’t exceed the limit), you can accumulate more funds faster.
Cash ISA allowance
Keep in mind that your £5,760 cash ISA allowance is available to you for a full year. It’s crucial that you use as much of your ISA allowance before the deadline (April 5thof the following year) as unused allowance cannot be carried over the following year.
If you miss the deadline, there is no way to get your allowance back. This means you’ll miss the opportunity to take advantage of one of the best tax-reduction vehicles in UK.
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