Showing posts with label isa. Show all posts
Showing posts with label isa. Show all posts

Wednesday, March 20, 2019

The Lifetime ISA aka LISA

With just 2 weeks left until the end of the tax year, now is the time to look at all the options available to reduce your tax bill for the year 18/19.

We have written a detailed article on the subject in the past and most taxpayers are aware of the more popular options such as pension contributions and investments into ISA or EIS.

One container however which is often overlooked is the Lifetime ISA aka LISA. It was introduced in 2017 and can be used in conjonction with the other vehicles (even though the total amount for both ISA and LISA remains capped at £20,000). As with a regular ISA, all income and gains inside the container are tax free. But as with a pension, money contributed up to £4,000 will receive a 25% top-up from the government. All the specifics are described in the article mentioned above so please refer to it for more details but here is a list of scenarios where investing in a LISA makes sense:

You plan on purchasing your first home in the near future

Obviously this is the main use case for that product and it therefore makes sense to use it in that case. The only constraint is that the house be less than £450,000.

You are a basic rate band tax payer

If you are basic rate band tax payer, i.e. you marginal tax rate is 20%, the tax benefit you get from the LISA is identical to the one you get from a pension. But with a LISA the money is blocked for a much shorter period since you can get the money out when you purchase your first home. If you don't have a property yet, this is therefore a great option for you to look at.

Thursday, February 9, 2017

Pension contributions: time is running out...

It's now the time of the year to start thinking about funding savings and pensions. And all the more this year as starting next year, high earners will see their tax benefits on pensions seriously curtailed.

There are no changes this year in VCTs, EIS and SEIS funds so there is no need to talk about those. Please refer to our previous articles on the subject. So what changes to expect this year?

1. As every year, make sure to fully fund your ISA

Each of us is entitled to pay up to £15,240 prior to 5th April 2016 into our ISA. And for the 17/18 tax year the limit will increase to £20,000. Before July 1, 2014, you could only invest half your annual ISA allowance into cash. However, following changes to ISA rules, you can invest the full £15,240 allowance into a cash ISA. This is an interest-bearing account that carries no risk, although as interest rates are so low, your returns may be eroded by inflation. Also note that you can invest some of your allowance in Innovative Finance ISA, such as P2P funds.

Don't forget that your kids have an allowance as well. The Junior ISA allowance for 16/17 is £4,080.