So, the Chancellor has delivered his Spring 2015 Budget Statement, with new measures announced across a wide variety of areas. Having focused on Pension Reforms in his Budget last year – with the changes about to take place from 6 April 2015 – this year’s Statement contained a stronger focus on Savings.
So what were the key points, and how might these be relevant to you personally or in business ?
Well, together with the usual increases in allowances and tax thresholds, the Chancellor announced some further measures relating to ISAs (Individual Savings Accounts) and tax-free savings that will come into effect over the next 12 months.
From the autumn, you will be able to withdraw money from your cash ISA, and subsequently pay back into it, without it counting towards your annual ISA allowance. So currently, if you invested the maximum £15,000 in a cash ISA, and you took out £5,000 during the course of the year, you would not be able to replace it within the same tax year, and only £10,000 would remain within the ISA wrapper. Going forward, with the maximum annual allowance at £15,240, you will be able to maintain the maximum throughout the year, withdrawing some if you need to, and then replacing it.
However, the tax benefits of the cash ISA will have some competition from normal savings and bank accounts, with effect from 6 April 2016. Each basic rate taxpayer will have a personal savings allowance of £1,000 (£500 for higher rate taxpayers and £0 for additional rate taxpayers). This means that no income tax will be deducted from the interest earned on savings / account balances until it exceeds the allowance. However with interest rates so low, you would have to have significant cash savings in order to benefit from the full allowance.
This means that cash ISAs and bank accounts will actually be doing a very similar job in future, particularly for basic rate taxpayers. Namely providing a safe harbour for your cash, with interest paid out tax free. I recommend you maintain 3-6 months’ worth of expenditure as readily accessible cash as an emergency fund. It’s also a good idea to apply this principal to your business as well as your personal expenditure, to ensure that you manage your cashflow effectively and can cover immediate and occasionally unexpected costs.
However cash ISAs and current accounts do not provide the opportunity for your money – your capital – to grow, and this is the role of a Stocks & Shares ISA. These also have an annual allowance of £15,240 (from 6th April 2015) and provide the potential to achieve capital growth over the medium to long term and/or regular income. If you choose the funds with the help of a Financial Planner, they will be matched to your risk profile and aligned to deliver against your future objectives. The funds grow in an almost tax-free environment, and when you withdraw money, there is no income tax or capital gains tax to pay – a simple and effective way of investing for the future. Make sure you’re making the most of these valuable tax reliefs!
To receive a guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, please contact Amanda Redman on 07801 045587, email firstname.lastname@example.org or visit www.amandaredmanfp.co.uk
Remember that the value of a Stocks & Shares ISA can fall as well as rise, and you may get back less than the amount invested. An investment in a Stocks & Shares ISA will not provide the security of capital associated with a cash ISA. The favourable tax treatment given to ISAs may not be maintained in the future as they are subject to changes in legislation.