Article

Seven tips for using your ISA allowance

ISAs are one of the simplest ways to invest and save tax. Here are some tips for investors looking to use their allowance before April 5th.

| 9 min read

A Stocks & Shares ISA (Individual Savings Account) remains one of the most popular ways to invest, allowing the holder to shelter investment returns from tax each year. The current tax year ends on 5th April so anyone considering using their ISA allowances should not delay.

Your ISA investment allowance

This tax year (2023/2024), you can hold up to £20,000 in one ISA or split between several of the various types; the most used being Cash ISAs and Stocks & Shares ISAs. Whichever type of ISA you invest in you pay no income or capital gains tax (CGT) on the returns.

Why is this important? Well, you can’t carry over any unused allowance, so if you don’t use it before 5th April, it is lost forever. You get a new allowance in the new tax year, but you could have missed the opportunity to shelter more of your savings and investments from tax.

Why use your ISA allowance?

  • Excellent tax benefits

The tax you would pay on capital gains on investments such as shares sits between 10% and 20%, depending on your tax position. This means holding funds in an ISA can make a lot of sense. Even if keeping your money outside the clutches of the tax man doesn’t seem relevant now, it might in the future. It could be worth planning ahead for when your wealth grows.

  • Simplifying your life

ISA income or gains don’t need to be declared on a tax return, so they can make your affairs simpler.

  • Flexibility

As well as being able to invest in a wide range of assets, our flexible Stocks & Shares ISA allows you to access your money at any time, so it’s suitable for a variety of saving and investing needs.

Stocks & Shares ISA

Seven tips for using your ISA allowance

1. Leave your ISA in cash for now if you can’t decide

If you're unsure where to invest, you can always secure this year's allowance with cash now and decide later. There is no charge for holding cash in our ISA. However, take care not to wait in cash too long. Interest on cash in a Stocks & Shares ISA is unlikely to be enough to keep up with increases in the cost of living, and for the longer term you stand to be better rewarded by investing.

2. Consider managed investments

    Monitored and rebalanced by Charles Stanley experts, each of our multi asset funds offers a diversified portfolio in one easy-to-buy investment designed to meet a broad risk profile. The funds are actively managed by one of our dedicated portfolio management teams, which means you do not need to monitor and change individual funds, shares or other assets in your portfolio – it's done for you.

    Our range of multi-asset funds invest in other funds as well as other assets across a variety of areas. Not having all your eggs in one basket means you are not reliant on specific investments or areas performing well and you benefit from Charles Stanley’s investment expertise and day-to-day portfolio management.

    3. Get some ideas to make your own decisions

    'DIY' investors who wish to select investments themselves can choose from the exceptionally broad range available: thousands of funds, UK and overseas shares, gilts, bonds, investment trusts and ETFs.

    With so many possible investments selecting individual ones can be a daunting prospect. To help narrow down the field our Research Team has created the Direct Investment Service Preferred List, which highlights what we consider to be the best-quality investments in major areas.

    It provides a comprehensive range of options as it covers funds and investment trusts, and includes passive funds or trackers as well as actively managed investments. If you are looking for inspiration before the tax year-end, make sure you read our ideas on how you might use your ISA allowance.

    4. Diversify

    If you invest too much in one area you are reliant on its fortunes. Diversification can allow you to secure strong long-term returns but without excessive risk and reliance on one or a few areas. It’s the process of dividing your investments between different investments, as well as different asset classes, such as shares, bonds, property, cash and others.

    Investors often use funds to provide wide-ranging exposure to a market or asset class. For funds investing in shares, a single active fund typically offers 50 to 80 holdings – ideal for the investor without the time or inclination to select their own. By holding several funds specialising in different areas, you can build a very diversified portfolio quickly and simply. Follow the link for more on how funds can be a great investment shortcut.

    5. Consider accounts for your family

      With inflation taking a huge bite out of spending power and perhaps more tax rises ahead, it is more important than ever to ensure your finances are as tax efficient as possible.

      If you are married or in a civil partnership, it’s possible to organise your affairs efficiently so that tax-free allowances are maximised. Using ISAs a couple can shelter up to £40,000 each year from tax. Transfers between spouses and civil partners are tax free so you can shuffle any money earmarked for investing between you and make the most of the ISA allowances. There are more of our tax saving tips here.

      Meanwhile, Junior ISAs are a popular way for family and friends to build up tax-efficient savings and investments for a child. The tax benefits are the same as an adult ISA – no capital gains tax, and no further tax to pay on income. Withdrawals are possible from the age of 18 when it automatically converts to an adult ISA, meaning the pot can be useful to help with the cost of university or a deposit for a house. This tax year’s Junior ISA allowance is £9,000 per child.

      6. Pensions are also an option

        Pensions are often a highly effective means of investing for retirement owing to the tax relief available on payments into them.

        Currently, anyone under 75 with relevant UK earnings can receive tax relief on pension contributions when they use their annual allowance with a personal pension such as a SIPP (Self-Invested Personal Pension). HMRC adds 20% and any further higher or additional rate income tax relief can be reclaimed – a potentially simple way of reducing your income tax bill for the year.

        The tax treatment of pensions depends on individual circumstances and is subject to change in future.

        SIPP

        7. Don’t leave everything until the last minute

        You can make payments into your Charles Stanley Direct ISA online using your debit card until midnight on 5 April. This is via the "Pay Money In" link under the "Manage my money" section of the site on your My Accounts page.

        Should you wish to add funds to your ISA (or SIPP) with us in the 2023/2024 tax year, the following deadlines apply:

        • Debit card payments

        You can make payments online using your debit card until midnight on Friday, 5 April via the ‘Pay Money In’ link when you are logged into your account. This can be found under the ‘Manage my money’ option on your Dashboard page, under the ‘My Accounts’ tab.

        We recommend you don’t leave subscriptions until the last minute in case you encounter a problem making a payment, and we cannot accept payments from anyone other than the account holder.

        • Electronic transfers

        Through the Charles Stanley Direct Investment Service, we are able to accept an electronic payment, the funds need to arrive with us by midnight on Wednesday, 3 April. Please ensure that you quote your account number as reference at the time of payment.

        Find out more

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        Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

        Are you ready for Tax Year End?

        Which tax changes are approaching and could you be affected? Find out how to save money before the end of the financial year.

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        Charles Stanley is not a tax adviser. Information contained within this page is based on our understanding of current HMRC legislation. Tax reliefs and allowances are those currently applying and the levels and bases of taxation can change. Tax treatment depends on the individual circumstances of each person or entity and may be subject to change in the future. If you are in any doubt, you should seek professional tax advice.

        Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus.