AS THE END of the tax year approaches, time is running out to make tax-free savings.
The final day that you can make use of your annual allowance is April 5. Here’s why you should use it not lose it.
How does an ISA work?
An ISA is a type of savings account but with tax benefits: you don’t pay tax on any interest you earn. The most common types are cash ISAs and stocks and shares ISAs (where your money is invested in the stock market).
How much can I put in?
Everyone over 16 has an annual ISA allowance of £20,000. From the age of 16, you can pay into a cash ISA, but you must be over 18 to invest in a stocks and shares ISA.
How many ISAs can I have?
There is no limit to the number of ISAs you can have overall, but you can only pay into one of each type in a single tax year. Remember: your annual contributions cannot add up to more than £20,000.
An ISA is a savings account, but with tax benefits
Can I take my money out of an ISA at any time?
If you choose to have a fixed-term ISA, you may earn more interest, but you can’t withdraw your money before the end of the fixed term without losing that bonus.
Why does it make sense for me to max out an ISA?
ISAs are a flexible and tax-efficient way of saving for everyone – even under-16s can take out a junior ISA.
Allowing annual deposits to grow year on year can result in a tidy sum that you can withdraw tax-free when you need it.
What is a LISA?
A Lifetime Individual Savings Account (LISA) is open to anyone aged 18 to 39 who wants to save for retirement or buy their first home. You can put in £4,000 a year, but there is a 25 per cent penalty if you withdraw the money before you turn 60 or for any purpose other than buying a first home.
How do I get a Government bonus?
You get a 25 per cent bonus on what you save into a LISA, so if you put in £4,000, that’s a guaranteed return of £1,000.
Views expressed in this column are those of the expert and do not reflect the views of Klarna. To learn more about Klarna visit klarna.com/uk/money-talks/
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