The new tax year is fast approaching and with this comes changes to the ISA landscape. From 6th April 2017, the new Lifetime ISA will be available and the annual ISA allowance will increase from £15,240 to £20,000.
We have put together 20 tips to help you manage your ISA allowance more efficiently.
1. Set a Goal
Whether you are new to ISAs or already have an account, setting a goal helps you to stay focused over the long-term. This will be your personal reason for investing, and with a set goal you are more likely to check your performance and add to your ISA when you can.
2. Check Your Progress
By setting a goal amount you can track your performance and monitor if you are on track to reach your goal. By checking your progress, you will soon know if you are falling behind or set to reach your target earlier.
3. Top up Anywhere, Anytime
Whether you’re falling behind your target or simply have extra cash available, topping up your ISA is a fast and easy way to keep your investment on track. With our first-of-its-kind impulseSave technology, you can add as little as £1 at a time to your ISA through the website or our mobile app.
4. Ensure Diversity in Your Stocks & Shares ISA
No one can accurately and consistently predict the market, the key to managing this is having exposure to a selection of investments. With a diversified portfolio, you’ll have exposure to a variety of manager styles, asset classes, geographic regions and market sectors. By having a diversified portfolio, you will be minimising the level of risk and maximising the potential returns, putting you in a stronger position.
5. Time in the Market, Not Timing the Market
When you invest your money, it is easy to start watching the markets to see how much it’s earning and to try to ‘buy at the bottom, sell at the top.’ However, it is difficult to time the financial markets. Instead, you could add small amounts each month. This way if the market falls you may be able to buy more units in the fund at a lower cost, taking advantage of pound cost averaging. It’s time in the market, not timing the market that is important.
6. Choosing Your Attitude to Risk
When investing in an ISA it is vital you choose the risk attitude that you are comfortable with. The risk profile you decide will impact the long-term performance of your ISA. It is important to consider the length of time you wish to invest for and your personal attitude to risk and capacity for loss.
7. Drawbacks to Dipping into Your ISA
Changes to ISA rules have reduced the consequences of taking money out of your ISA, however there are still drawbacks to dipping into a Stocks & Shares ISA regularly. Dipping into your investment will result in having to sell funds and potentially lose potential returns.
8. Keep Track of Your ISA Allowance
Although the ISA allowance is increasing to £20,000 on the 6th April 2017, it is important to keep track of how much you are adding to your ISA account and your remaining allowance. If you pay more than the allowance, you’ll have the excess money returned to you by HMRC with a tax bill for any income it has generated.
9. Do Not Open Too Many ISAs
You can pay into one Cash ISA and one Stocks & Shares ISA each tax year. If you try to open or pay into anymore, your money will be returned to you by HMRC and you could face a tax bill.
10. Make Life Simple, Transfer Your ISAs into One Account
With the low interest rates over the recent years you may have a range of Cash ISAs that you opened each tax year with whoever had the best rate at the time. This can mean keeping track of your remaining ISA allowance is difficult. You can transfer money from all your ISAs into a single, easy-to-manage ISA. Transfers do not count towards your annual allowance and you can transfer from a Cash ISA to a Stocks & Shares ISA.
11. Be Aware of Cash ISA Penalties
If you decide you would like to transfer your ISAs, make sure you understand the terms and conditions of the account. Many fixed-term Cash ISAs have penalties and charges on early withdrawals.
12. Be Comfortable with the Charges
When selecting your provider for a Stocks & Shares ISA, do not always go with a name you know, as they may charge higher fees. It is important to choose the right provider for you, one that fits your attitude to risk, and offers fees you are comfortable with.
13. Invest Together
The ISA allowance is personal, so from 6th April 2017 a couple can shelter a combined £40,000 in the tax year from the HMRC.
14. Save for Your Children’s Future
From 6th April 2017, the Junior ISA allowance will increase to £4,128. These ISAs are a permanently tax–efficient savings account. Any money you put in will be locked away until your child’s 18th birthday, when it will become a standard ISA. Those who have children aged 16-17 can have both a Junior ISA and an adult Cash ISA.
15. Inheriting an ISA Account
If a married ISA saver or one in a civil partnership dies their surviving partner can inherit their ISA accounts and retain the tax-free status, when they invest that sum into a Cash ISA in addition to their own ISA allowance. Providing they do this within three years of their death.
16. You Are Not Stuck in an ISA Forever
As ISAs are accessible they can be used in a way that suits your own financial circumstances and your taxpayer rate. One advantage of an ISA is there are no time restrictions on when you access your funds that may be the case in other financial products that promote tax efficiency.
17. Reinvest Your Returns
It can be beneficial to keep any returns from your investment within your ISA. This allows your investment to compound over time, meaning you’re investing more as you add returns to your capital. Over time, compounding can make a huge difference to reaching your goal.
18. Focus on the Long Term Not the Short Term
While it’s wise to always know how your ISA is performing, checking it can be harmful if you don’t know what to expect. Performance should be judged over time as markets change every day. Remember, your strategy is for the long term.
19. Do not wait until the end of the year
Investing into a Stocks & Shares ISA throughout the year, not only saves last-minute rush to make full use of your ISA allowance, it could also make a difference to your final gains. As your money will have extra time in investments.
20. Stay the Course
Using up your ISA allowance each year could significantly boost your investments and save you tax.
Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time.