Sheltering investments from tax
Even though the end of this tax year may seem fairly distant, if you haven’t yet taken full advantage of your Individual Savings Account (ISA) allowance you could be missing out from sheltering your investments from tax.
ISAs enable you to hold investments and pay no capital gains tax and no further tax on the income you receive. From 6 April 2010, the government increased the ISA allowance limit to £10,200 for all eligible ISA customers.
An ISA is a tax-efficient ‘wrapper’ in which you can hold either stock market-based investments or a traditional savings account. Any interest earned on savings or bonds and any capital gains made on investments within an ISA are tax-free.
ISA investment limits (2010/11)
You can invest up to £10,200 in two ways:
- Put all £10,200 in stocks and shares, or
- Put up to £5,100 in cash and the balance in stocks and shares
You don’t even need to declare ISAs on your tax return, which makes ISAs particularly appealing to higher-rate taxpayers. In many instances, it costs no more to told investments inside an ISA than to hold them outside, which means you would generally receive the benefits free of charge.
With an increase in capital gains tax already announced in the emergency Budget and potential future tax increases, it has never been a more important time to take full advantage of your ISA allowance.