ISA Bonus for the over-50s Have you taken advantage of topping up your tax-free savings?
If you are aged 50 or over (don’t ask us why 50), from 6 October your Individual Savings Account (ISA) allowance increased by a further £3,000 to £10,200; £1,500 of this increase can be saved in a cash ISA. Everyone else will be entitled to this higher contribution allowance from 6 April next year (Again, don’t ask us why everyone lese has to wait 6 months) .
The increase was announced during the Chancellor’s last Budget and is only the second time limits have been raised since ISA’s were launched in 1999. The earlier you invest in the tax year, the better you can make sure that you are using your ISA allowance to its full advantage and the longer your money is outside the reach of the taxman. ISA’s 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.
ISAs can be used to:
- save cash and get tax-free interest
- invest in shares or funds – 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. However, once you have transferred your cash ISA to a stocks and shares ISA it is not possible to transfer it back into cash. Tax facts Interest and dividends 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 (2009/10) from the sale of shares and certain other assets in the current tax year, you would normally have to pay CGT. However, you do not have to pay any CGT on gains made from an ISA.
Your questions answered
Q: Can I invest the full £10,200 in cash?
A: No. Although ISA limits have been extended there are still separate limits for cash ISAs and stocks and shares ISAs. The maximum that can be invested in a cash ISA is £5,100, up from the current limit of £3,600. If you are under 50 you will be able to take advantage of this raised limit from next April.
Q: I am over 50, if I take out a cash ISA, can I also invest in a stocks and shares ISA?
A: The limits may have changed but the principle behind ISAs remain the same. From October 5, if you invest the maximum in a cash ISA (£5,100) you can now also invest the rest of your allowance (£5,100) in a stocks and shares ISA.
Q: I am over 50, but I’ve already taken out an ISA this year. Will I be able to top up my ISA?
A: If you already have £3,600 in a cash ISA, you should be able to pay a further £1,500 into it. If you don’t already have a stocks and shares ISA, you could also invest £5,100 on or before April 5 next year. (Or alternatively you could put £6,600 into stocks and shares if you don’t “top up” the cash ISA.) If you have invested the full £7,200 in stocks and shares you will be able to put a further £3,000 into this account – or put this money into a cash ISA instead.
Q: I’ve always just had cash ISAs. Should I think about a stocks and shares ISA now to take advantage of the new limits? A: Whether you are investing in a bank account, shares, bonds or property it makes sense to do it in the most tax-efficient way possible. However, the tax treatment should not dictate where you invest your money.
For advice visit our Independant Financial Services Page