Ten ways to use your ISA allowance

Shopping around for the best Cash ISA rate? For a basic rate taxpayer, a Cash ISA of £5,100 earning 2% would save only £20.40 in tax. If you are not excited by this, please read on!

ISA on wooden blocks You can invest up to £10,200 in a Stocks and Shares ISA and any unused balance, up to a maximum of £5,100, in a Cash Isa. They can be an integral part of your financial planning – here are 10 ways to make them work harder for you:

1. Save at least 20% tax on interest income

Rathbone Ethical Bond fund has a 7.4% yield* – tax saved: £150.96 (20% taxpayer), £301.92 (40% taxpayer) or £377.40 (50% taxpayer)

2. Save up to 32.5% tax on dividends

Higher rate or additional rate taxpayers save tax on dividends from shares or collectives within an ISA. Aviva Property Trust has a 4.17% yield* – tax saved: £95.70 (40% taxpayer) or £138.24 (50% taxpayer)

3. Pay no Capital Gains Tax

Make unlimited gains within an ISA or make disposals within your CGT allowance each year and repurchase through an ISA.

4. Transfer shares from a Save as You Earn Scheme

Transfer into an ISA within 90 days of maturity for tax-free gains.

5. Preserve your over 65 tax allowance

Income between £22,900 and £28,930 is effectively taxed at 30%! Taking the maximum tax-free lump sum at retirement and investing in ISAs, you could reduce your taxable income and gain tax-free income from the ISAs, saving up to £603 every year.

6. Hold on to your personal tax allowance

Your personal allowance reduces for over £100,000 taxable income, effectively a 60% tax rate between £100,000 and £112,950! Sheltering investment income within ISAs can save up to £2,590.

7. Share your allowance

For shared finances, use a higher rate taxpayer's ISA allowance first.

8. Flexible retirement planning

No tax relief on contributions, but you can take tax-free income from ISAs at any age, with no restrictions on how. Alongside your normal pension planning, ISAs can give additional flexibility.

9. Cash ISA scrappage scheme

You usually get a better rate on“new cash”than for transfers from existing Cash ISAs. You can transfer old Cash ISAs into Stocks and Shares ISAs keeping only the best Cash ISAs.

10. Keep your options open

Use your ISA allowance even if there is no immediate benefit to provide more options if your circumstances change. Remember, the less tax you pay on your investments, the faster they will grow year on year. Please contact us for more details of how ISAs could work for you. *Example funds – 12 month yield figures from Trustnet 1/7/10. Remember, income from investments can fluctuate, unit prices can fall as well as rise and past performance is no guarantee for the future. Property funds can be illiquid, as it is not always possible to sell property investments immediately.This could delay future switching or encashment.

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