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Why you should make the most of your ISA allowance while you still can

With the 5 April ISA deadline approaching, here’s why you should make the most of your ISA allowance this tax year before it’s too late.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

You have until 5 April to make the most of your £20,000 ISA allowance. It can’t be carried forward, and once it’s gone, it’s gone.

Here’s why it matters and what you need to do if you want to take advantage.

This article isn't personal advice. ISA and tax rules can and do change and any benefits depend on personal circumstances. Investments can rise and fall in value, so you could get back less than you invest. Inflation reduces the future spending power of money. If you’re not sure if an investment’s right for you, ask for financial advice.

ISAs can help protect you from tax

Within an ISA you don’t pay UK tax on income or capital gains, and you don’t have to declare them on a tax-self assessment.

Saving you a headache or at least a bit of admin for future you.

You might even think that your savings or investments currently wouldn’t mean you have to pay tax. But it’s also about what they grow to become in the future. It could mean you pay tax.

Deciding to put money in an ISA today can save you money later down the line.

Why ISAs are more important this tax year

For investors

You get a dividend allowance and capital gains tax allowance for investments outside of an ISA.

The dividend allowance has been reduced since the 22/23 tax year when it was £2,000. This tax year it’s £1,000, half of the previous allowance. That means many earning dividends could pay more tax. And it’s due to fall further to £500 next tax year.

Capital gains tax will also catch more people out. The allowance is lower this tax year too – £6,000 instead of £12,300. It will be lower again next year, at just £3,000.

Making sure as much of your money is in an ISA as possible means you have less to worry about with these falling allowances.

For savers

For savings outside of an ISA, there’s a personal savings allowance of £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers.

A few years ago, we had low interest rates. So, you’d have received a lot less interest on cash held in savings accounts.

As an example, an interest rate of 0.5% two years ago would have meant you’d have needed at least £200,000 in a savings account before you’d have reached the personal savings allowance for basic-rate taxpayers. Higher-rate taxpayers would’ve needed £100,000.

These are vast sums of money for many people, so a Cash ISA could’ve been written off as useless if you had nowhere near that amount.

This year we’ve seen interest rates at least 10x higher than this. There’s more interest to tax. And the personal savings allowance hasn’t risen to match it.

You now need much less. With an interest rate of 5%, you’d need £20,000 or £10,000 to be at risk of paying tax on savings interest. These figures assume the interest rate and account balance stay the same for the whole year.

Additional-rate taxpayers don’t have a personal savings allowance so will pay tax on all interest they earn.

A Cash ISA is therefore much more valuable than it was two years ago.

For all taxpayers

The personal allowance and higher-rate thresholds have been frozen since April 2021. The additional-rate threshold was also lowered to £125,140 in April this tax year.

We’ve seen inflation since then, and wage increases for some to counteract this, forcing many into new tax brackets.

This change in tax bracket doesn’t just affect the tax you pay on your salary or wages. It can also impact the amount of tax you pay on savings, dividends, and capital gains tax.

Make the most of your ISA allowance

It's quick and easy to open an ISA, taking just minutes online once you’ve read all the important information.

If you get started before the tax year deadline on 5 April, you could make the most of this year’s £20,000 ISA allowance.

You can split your ISA allowance however you want between the different types – for example, you could invest £10,000 in a Stocks and Shares ISA and the remaining £10,000 in a Cash ISA.

We also offer a Junior ISA and Lifetime ISA.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

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Written by
Charlie Hutchence
Charlie Hutchence
Investment Writer

Charlie is a part of our writing team that covers investments and ISAs. He's passionate about the value of long-term investing and making your money work harder for you, using his writing to help our clients make the most of their money.

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Article history
Published: 28th March 2024