ISA Deadline 2021: Monday April 5, 2021
With just under three months to the ISA deadline, there is still some time to investigate the types of ISAs available, decide which kind suits you best, and find an appropriate supplier.
Why does the deadline matter?
UK residents get an ISA allowance for each tax year – a maximum amount they can save in a tax-free cash or investment ISA.
At the end of each tax year, this allowance gets reset, so the end of each tax year becomes the ISA deadline. In the UK, the tax year runs from 6th April to midnight on 5th April. At one second past midnight, you are in a new tax year, and lose any unused tax allowance.
Currently in the UK, up to £20 thousand of ISA investments are exempt from tax annually, indeed ‘taxed-exempt-exempt’ (TEE). Investors get no tax relief on money paid in, but all investment growth and withdrawals are tax-free. This tax free limit (£20k) is for everyone except those with Junior ISAs.
(If you complete a tax return, you do not need to declare any ISA interest, income or capital gains on it.)
Savers often feel pressured to make the most of any unused allowance in the run up to the ISA deadline. In all honesty, if you don’t think you’re going to use all of your allowance before the ISA deadline, there is no need to worry. Not using it won’t usually affect how much allowance you’re entitled to in future, it just means you haven’t taken advantage of all of your tax free allowance for that particular tax year.
And not being able to pay in the full £20k matters less and less as newer forms of ISAs offer wider access for people with smaller investments.
However, for higher rate tax payers, ISAs can create income that avoids the 45% tax requirement. So if £20k was invested, hypothetically, by a higher tax rate payer, in our Premium Plus IFISA and earned the target 6.06% per annum, the investor could make £1212 back each year without paying tax, a tax saving of £545. Moreover, by reinvesting, that money will also earn interest as the fund grows, increasing its value to the investor without reducing the original capital.
That said, there’s nothing like a deadline to sharpen the mind, and for everyone looking into options, returns and likely interest rates now, rather than at the last minute, makes good financial sense.
It would be wrong not to note here that this year there have been some calls to extend the deadline to allow people’s finances, hit by COVID disruptions and Brexit uncertainties, to recover. We’ve seen no signs that the government is seriously considering this – as yet.
ISA Flexibility
Until April 2016, if you withdrew money from your ISA, that money still counted towards your allowance, even if it was replaced. For example, if you were to deposit £10,000 into your ISA and then withdrew £5,000, the amount you could deposit into your account during that same tax year was still only £10,000.
(The £5,000, even though withdrawn, used up some of your tax-free allowance.)
However, ‘ISA flexibility’ has eased things a little: money can be both withdrawn and replaced into an ISA without eating up any of the annual allowance.
(However, some ISA providers will charge for early withdrawals, so this is something to check before making withdrawals.)
The effect of the Budget
Britain is entering uncharted waters as the newly signed - and being negotiated - Brexit deals pan out and Britain sets sail on a new path.
Budget day this year has been published, expected to be detailed on Wednesday 3 March 2021.
The current Chancellor of the Exchequer, Rishi Sunak, will have to make some tough decisions. We know that he tends to vote in line with the Conservative party (according to TheyWorkForYou), and seems generally thought to be unlikely to ‘rock the boat’ for Britain’s finance industry.
Normally we would already have had a Budget announcement and a reasonably clear idea of taxes etc for 2021/22. However, against a COVID-19 background (and almost certainly affected by the uncertainty over conditions of a Brexit deal, thankfully now signed and giving some certainty), Sunak has kept his spending review announcements to a single year.
However, that has not stopped him making hints about the need to balance the books post-pandemic.
So based on our experience and our reading, our “best guess!” is this:
Government borrowing is high, so boosting economic recovery will almost certainly be the priority for the next Budget. We expect capital investment to be amongst the high priorities. Whilst increased full on ‘austerity’ measures seem unlikely, Government spending will have to be tightened up. The Government has already pledged not to increase rates of income tax, VAT nor NICs in this term.
Sadly, however, to balance the books, tax rises seem to be almost inevitable, at least in the medium term if not in the short term. Other taxes, such as Inheritance Tax and Capital Gains might also give the Chancellor some ‘wriggle room’.
Most sources suggest that interest rates, whilst low, are still unlikely to rise at all.
Higher taxation will make ISAs look more attractive, but the lower interest rates will make cash ISAs unattractive, and other types of ISAs – like our IFISA, although obviously there are others – worth a closer look.
Why look now?
Right now, you have time to think about what kind of ISA will suit you, and you may want to move your current ISA to a different plan for better returns, more security or whatever your ISA goals are.
But your current provider may apply conditions or charges for moving money, so you need to check what this is.
You may also want to look at which providers you like and trust, consider your options and look at what levels of risk you are happy with accepting.
ISA Considerations to Get Ready for the Deadline - Our Five Point Checklist:
1. Is an ISA right for you?
We can see very few downsides, especially to a flexible ISA, but you need to be comfortable about the difference between savings and an ISA.
2. What kind of ISA is right for you?
It helps to understand where your money is going and what for, and the level of risk in the investment. For example, we loan out your money against property, in what we believe to be a relatively conservative manner. Other providers use your money for other types of investments/loans.
We recently took a look at categories of ISA, which you may find useful:https://easymoney.com/blog/isas-what-they-are-and-how-does-each-type-differ
3. Which supplier is right for you?
You’ll need to feel comfortable with the supplier you use, looking at things like their backing, their management team, their market presence and how open they seem about what they do and how.
4. Target Interest Rates
Interest rates on ISAs are generally a guideline: the actual rate achieved may differ because of performance, bad debts, time lags in obtaining returns….
It should be relatively easy to see how accurate suppliers’ rates have been in the past. Although past performance is never a guarantee of future performance, at least you can get a feel for whether a supplier is over-optimistic.
5. Customer Satisfaction
Reviews can difficult as different people will review at different times in the investment process, but do read the comments and see if there are any common threads.
Review sites like TrustPilot are amongst the more reliable as they make efforts to see whether reviews are genuine.
Consider Us?
Naturally, we’d love you to consider using easyMoney as your ISA provider.
You can call us on +44 (0) 203 858 7269.
You could email us: contactus@easymoney.com.
Or we have an easy to use form on the website: https://easymoney.com/contact-us
As our name suggests, we aim to make things easy for you.
easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.
easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.