Maximising your ISA before the end of the tax year

Why you should save 5 April as a date in your diary

7 March 2022

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If you save in an ISA, you might want to mark 5 April in your diary. Why? For your finances, it’s like New Year’s Eve (without the fireworks). With a new tax year starting annually on 6 April, the day before is your last opportunity to make the most of your ISA allowance before it resets. And if you don’t use it, you’ll lose it.

Read on to find out:

why your ISA allowance is important (even if you don’t already pay tax on your savings interest)
how the ISA allowance works
how to make the most of your ISA allowance

For a recap on what ISAs are and the rules they come with, read our article.

What’s my ISA allowance?

One of the main benefits of saving in an ISA, as opposed to an ordinary savings account, is that any interest you earn in it is tax-free*. Now most people don’t ordinarily have to pay tax on their savings interest (read our article on the Personal Savings Allowance to find out if you do). So why are ISAs still so popular?

Part of the reason is the ISA allowance. It’s an amount of money set by the government that you’re able to pay into an ISA every year – protecting it from tax for as long as it’s in there. For the 2021-22 tax year, the ISA allowance is £20,000. (It’ll be the same for 2022-23, by the way.)

So why should I use it?

Your ISA allowance only lasts the year before re-setting on 6 April. By the time the clock chimes midnight, any unused allowance for the previous year is gone, and you can’t carry it over.

That means if you want to protect as much of your savings from future tax as possible – even if your savings interest isn’t taxable at the moment – you should think about using as much of your ISA allowance as you can every year.

The key point is you can save only up to the ISA allowance tax-free every year, and if you don’t use the allowance, you lose it.

It’s also worth remembering that the ISA allowance is set by the government and is subject to change. So while it’s £20,000 for the 2021-22 tax year and the next one, your ISA allowance could be more or less in future.

You could also find yourself with more savings than you’d expected if interest rates increase. That might be nice, but it could mean you exceed your Personal Savings Allowance sooner. Maximising your ISA allowance now could help future-proof your savings.

Key things to remember:

As long as your savings are in a valid ISA, the interest you earn on them there is tax-free
You can only save up to the ISA allowance tax-free every year
You can’t carry over any unused ISA allowance, so if you don’t use it, you lose it

Although 5 April might not be as festive as New Year’s Eve, it’s an important date for your finances. And if you didn’t stick to your new year’s resolutions in January, don’t worry – there’s always the new tax year.

*Tax-free is the rate payable where interest is exempt from UK income tax. Your savings balance will be eligible for this tax benefit for so long as it is held in a valid cash ISA account.

The tax treatment of ISAs and the applicable Government rules are subject to change. The benefits of your account for tax purposes will depend on your personal financial circumstances.

The content in this article is for information only and is not advice. All content in this article was accurate on the date of publication shown above.

If you don’t have an ISA already, learn more about our Cash ISA.

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The content in this article is for information only and is not advice. All content in this article was accurate on the date of publication shown above.