Individuals should act fast to make the most of their ISA allowance

27th February 2024

With the end of the tax year fast approaching, there is still time for individuals to take full advantage of their £20,000 ISA allowance.

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“In the current environment, it has become difficult for a lot of people to save as much as they would like, which can have a serious impact on financial resilience.  This makes it more important than ever to ensure that any savings that people can make, are as tax efficient as possible.

Making the most of your ISA allowance is a great place to start, and with the end of the tax year fast approaching, now is a great time to review this. The ISA allowance for 2023/24, which ends on 5th April 2024 is £20,000. It’s crucial to keep in mind that this can’t be carried over into the new tax year, so for those who have savings or investments held outside an ISA or a pension, it is important to ‘use it or lose it’ when it comes to this year’s ISA allowance.

Saving or investing in an ISA offers some great tax related benefits and people may not realise the upcoming changes to tax allowances which could have an impact on their savings. Firstly, the tax-free dividend allowance (the amount of dividend income savers can earn each year before they pay tax), will be halved from £1,000 to £500 from 6 April 2024. Yet all dividend income is tax-free in an ISA.

Secondly, the tax-free allowance for capital gains will reduce from £6,000 to £3,000 in the next tax year. However, there is no capital gains tax (CGT) due on stock market gains inside an ISA.

Additionally, with interest rates on savings accounts now higher than we have seen for a while, there is a greater chance of savers paying tax on their savings interest as the Personal Savings Allowance is £1,000 for basic rate tax payers and £500 for higher rate tax payers.  Interest from savings held outside an ISA are at risk of becoming subject to tax when they exceed this allowance.

Many workplaces now offer a Corporate ISA which can provide employees with a tax efficient way to invest and with the benefit of preferential rates compared to what is available on the high street. WEALTH at work have recently launched a Corporate ISA which enables employees to save via payroll. Individuals who are looking to maximise savings should speak to their employer to find out what support they offer.”