Making the most of your ISA allowances this tax year

With the end of the tax year fast approaching (5 April), now could be a great time to make the most of your tax-free allowances on Individual Savings Accounts (ISAs). Here, we’ll talk about what these allowances are and how to take advantage of them using apps like Starling and Wealthify to make things even easier.

What is an ISA?

An ISA is a type of account that offers a tax-efficient way to save or invest – if you have a Cash ISA any interest you earn will be tax-free, and if you have a Stocks and Shares ISA then any returns will also be tax-free.

Annual ISA allowance

The total ISA allowance for the 2021/22 tax year is £20,000 and it will stay at £20,000 for the 2022/23 tax year too.

This allowance can either be used just for a Cash ISA or split between a Cash ISA and other types of ISA, such as a Stocks and Shares ISA or Lifetime ISA. The annual ISA allowance will refresh each tax year - on 6 April.

Paying into an ISA

There are many ways to pay into an ISA. You can make weekly or monthly payments, or simply transfer a lump sum. You could set a savings target for your ISA and use Starling’s Bills Manager feature to schedule regular payments.

What ISAs are available?

Cash ISA

You can contribute up to £20,000 per year, and earn tax-free interest on this sum.

Stocks and Shares ISA

If you want to give your money more potential to grow, a Stocks and Shares ISA could be a great option. You don’t pay tax on any profits you make and since it’s not a fixed interest product, there’s the potential for higher returns.

With investing, returns aren’t guaranteed, and the value of your investments can go down as well as up, which means you could get back less than you invested.

There are many different types of Stocks and Shares ISA. With some you do all the research and trade the stocks yourself; with others, you use a provider that does almost everything for you.

One such provider is Wealthify, available on the Starling Marketplace. They offer Stocks and Shares ISAs, Junior ISAs, personal pensions and the option to invest ethically.

If you’re connecting an existing Wealthify account or signing up through the Starling Marketplace, you’ll be able to check your investment balance straight from the Starling app. If you set up a scheduled payment from your Starling account, you’ll also receive a notification the day before your ISA contribution is sent and immediately after the money has been transferred.

Lifetime ISA

A Lifetime ISA (LISA) can only be used to save for your first home and/or retirement, if you’re under 40. With a LISA you can put aside up to £4,000 per tax year, and every month the government will give you £1 for every £4 you put in. The LISA allowance is included within your total £20,000 ISA allowance, meaning if you were to use it fully, you would still have £16,000 left for other types of ISAs.

Junior ISA

A Junior ISA is a great, tax-efficient way to plan for your kids’ future. Each tax year, you can add up to £9,000 on your child’s behalf, split however you like between a Junior Cash ISA and a Junior Stocks and Shares ISA. This does not affect your £20,000 regular ISA allowance.

What to know before starting an ISA

Payment priorities

It’s a good idea to clear expensive debt first, and build up savings that can be instantly accessed in times of need, before you start contributing to an ISA.

Allowance deadlines

Any unused allowance from the tax year 2021/22 will disappear from midnight on 5 April 2022.

You can transfer old ISAs

If you have an ISA from a previous year and want to keep all your money in one place, you can transfer to another ISA provider - but you will need to use the official ISA transfer form and process to keep the tax-free status.

The above article is intended as general information and does not constitute advice. You should take independent advice if you have any questions about your specific circumstances.

The tax treatment depends on your individual circumstances and may be subject to change in the future. Please remember, the value of your investments can go down as well as up, and you could get back less than invested.