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Individual savings accounts (ISAs) can be a tax-efficient way to grow your wealth and help achieve your financial ambitions.
However, this can depend on how effectively you make use of your annual ISA allowance.
In this article, you’ll learn about what an ISA allowance is, as well as how you can maximise your ISA allowance.
What is your ISA allowance?
As an effective and tax-free way to save money, ISAs are also known as tax-wrappers.
The ISA allowance is the annual limit on how much you can contribute to your ISA, without paying any tax. As of the 2022/2023 tax year, the ISA allowance is £20,000.
There are four different types of ISAs:
Cash ISA – A standard account in which to save your cash, and is tax-free.
Stocks and shares ISA – An account where you can invest in various assets or funds, and not pay tax on any investment returns.
Innovative finance ISA – An account where you can invest in peer-to-peer lending and crowdfunding, without paying tax on interest.
Lifetime ISA – A tax-free account that lets you save for your first home or help supplement your retirement earnings. You can only invest £4,000 tax-free each year, and will not be able to contribute once you turn 50.
When it comes to making the most of your ISA allowance, you should consider seeking the expert advice of wealth management firms for more guidance on ISAs as part of your financial plan.
Top tips for maximising your ISA allowance
There are many different ways you can maximise the allowance of your ISAs, such as:
Seeking wealth management services
One of the best tips for maximising your ISA allowance, is to seek expert financial advice.
When it comes to your financial goals, an experienced wealth manager can help you build the best financial plan.
A financial expert will be able to assess your current circumstances, and advise on how to structure your savings, taking advantage of tax wrappers such as ISAs.
Make use of spouse contributions
If you have a spouse or partner, you each have an annual ISA allowance of £20,000, which combined, equals £40,000 of tax-free savings.
Spouses and civil partners can transfer assets between each other tax-free, so if one partner earns more than the other, they can transfer the necessary amount to make the most of their ISA allowance, whilst being tax efficient.
Diversify your ISA contributions
Another top tip is to diversify your investments. You can only contribute £20,000 tax-free into your ISAs each year, but you’re also allowed to open one of each ISA a year.
There isn’t a limit on the number of ISAs you can own overall, but you can only pay into one of each type of ISA in a single tax year.
Having a diversified portfolio of ISAs can be beneficial, helping you to achieve different financial goals.
By investing in ISAs, you can effectively structure your wealth, especially once you start implementing these top tips for maximising your annual ISA allowance.
Please note, the value of your investments can go down as well as up.