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The financial year spans from 6 April to 5 April every year which is also the timeframe to use your ISA allowance.
We want to give you some helpful tips and reasons as to why getting the most out of your ISA allowance is important during this period and how you can do it.
ISAs (individual savings accounts) were introduced in 1999 (the same year Ricky Martin graced us with Livin La Vida Loca) and enables individuals to save tax-free. The Government introduced ISAs as a way to encourage people to save without the worry that your money would be affected by tax deductions.
An ISA allowance is the maximum amount you can put in your account that is sheltered from tax within one tax year, like a cap. Once the new tax year begins your ISA allowance is renewed, so any unused allowance from the previous year will go to waste. The amount you add into your account is limited in an ISA account, known as an ISA allowance, to £20,000 for the 2022/23 tax year.
As your ISA allowance is tax-free there is no sacrifice for potential growth with the interest on your chosen account from your provider. Taking advantage of the full annual allowance ensures your savings and investment can see the full possible growth, you’re putting your money to work!
You’ll lose it! The current and new tax year both have ISA allowances of £20,000 and every year, like clockwork, you can take full advantage of a fresh and new allowance. If you don’t use it before the end of the tax year, you’ll lose it, and any unused allowance cannot be passed onto the next year.
Now that we know how important our ISA allowance is, let us explain how you can use your ISA allowance.
1. You can split your allowance between a number of ISA accounts
A useful feature we have here at Paragon with our ISA saving accounts is an ISA wallet. It’s a tax wrapper that enables you to open more than one cash ISA with us in the same tax year. You can spread your annual ISA allowance across our range of ISAs, a unique feature not all providers have.
2. Start using your ISA allowance as soon as the tax year begins
If you wait until the end of the year to start using your allowance you could be missing out on potential growth. Planning your savings at the start of the tax year ensures you get the most out of your ISA journey. The sooner your money is in the account the longer your funds are exposed to interest rates and grow without any tax deductions!
3. You don’t need a large amount to save and invest
The amount of money you put into your ISA doesn’t have to be a large lump sum. As long as you’re consistently adding contributions throughout the tax year, you’ll be surprised the decent nest egg you will have built for you and your future!
4. ISAs are flexible
In recent years ISAs have become more flexible. You can withdraw and replenish your cash in the same tax year without it affecting your annual allowance. Flexible ISAs are designed to help you make the most of your tax-free annual ISA allowance. We recommend however to double check with your provider that your ISA account has the flexibility feature, for example, Lifetime ISAs (LISAs) are not flexible ISAs. For more information on flexible ISAs have a look here.
5. You can transfer your ISA allowance
If you are disappointed with the growth of your savings and its performance, you can switch to a provider that offers a better interest rate. However, you will need to transfer your full allowance for that tax year to the new account. Make sure that this is a transfer, and not a withdrawal, or you could lose out on the tax-free status on the funds transferred.
Head officeParagon51 Homer RoadSolihullWest MidlandsB91 3QJ
Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551