The deadline for using your 2020-21 ISA allowance is approaching fast. You have until the 5th of April to deposit your £20,000 allowance after which time you will have lost the 2020-21 allowance for good.
What does this mean?
Every financial year the UK government stipulates an amount of money, otherwise known as an ISA allowance, which you can deposit into an ISA account in order for it to be free of any income or capital gains tax. Outside of an ISA, any income you make in the form of interest or returns on investments is subject to tax at your usual rate. The ISA allowance for the 2020-21 financial year is £20,000 and this allowance is set to continue for the next financial year of 2021-22.
Do you need large sums of money to open an ISA?
No, you can open an ISA and start saving into it with as little as £1. You can use as little, or as much, of the annual allowance as you like. The only stipulation is that you don’t deposit anything over the annual allowance into your ISA.
What happens after the deadline?
Once the deadline has hit you will have lost your 2020-21 allowance. That’s not to say you can’t open an ISA account and deposit into it, however any deposits you make after this date will come out of your 2021-22 allowance. Therefore, if you would like to maximise the allowance, we would strongly suggest you deposit into an ISA without delay.
Should I open a Cash ISA or a Stocks and Shares ISA?
This very much depends on you and your individual circumstances, however we would point out that with interest rates having fallen significantly in recent times, a stocks and shares ISA is usually the more profitable of the two. However, as with any investments, there are associated risks and it’s important that you familiarise yourself with the market before taking the plunge.