The Hidden Trick To Increasing Your ISA Allowance

Video Description

For 25 years Individual Savings Accounts (ISAs) have been a great way to invest and grow your wealth. Up until the recent Budget they were virtually free of all taxes. Whilst the Budget has changed the rules on Inheritance Tax, proposing that from 2026 shares in AIM stocks will receive reduced Business Relief, dividends and interest received in an ISA is still free from Income Tax and gains are still free from Capital Gains Tax. The only downside of an ISA is its fairly low annual allowance. You can only invest or add up to £20,000 a year into an adult ISA. This can be a problem for those with larger sums to invest who want to make it as tax efficient as possible but have yet to put much in ISAs and are not keen on pensions following more changes in the recent Budget. It can take years to build up a large investment in ISAs and if you don’t have the money now, you’re missing out using ISA allowances as these do not carry forward like they do for pensions. In this video we’ll discuss a great hack you can use to ensure you don’t miss out on using your ISA allowance even if you don’t have the money now. Now you may be thinking, what’s the point in building up your ISA allowance if you don’t actually have the money to invest. Well, you might not have the money to invest now but you might someday soon. This could be through a variety of reasons. Some of which are highlighted below. #1 – Future Inheritance #2 – Insurance payout #3 – Downsizing #4 – Selling or winding up a business #5 – Withdrawing the tax free lump sum from your pension In all of the above scenarios you could be talking about pretty big amounts and therefore trying to squeeze this all into one year’s worth of ISA allowance at £20,000 is just not going to cut it. If you don’t have a build-up of ISA allowance available, the majority of the amount you receive is going to be invested and subject to taxes. Income Tax, Capital Gains Tax and Inheritance Tax rates on money outside a pension or ISA are pretty dire. Ultimately this is going to reduce the level of income you can earn from the payout. The key to increasing your ISA allowance without having to invest all the cash right now is to use a Flexible ISA. Flexible ISAs were introduced in 2016 and essentially allow you to take money out of an ISA and then put it back in without it impacting on that year’s allowance providing you do it in the same tax year. For example, if you had already built up £10,000 in an ISA during the last tax year, in the current tax year you can now take out the £10,000. Before the end of the current tax year, you would be able to put £30,000 back in. The £10,000 you had previously taken out and £20,000 which is the new current year’s ISA allowance. The key point to remember here is that you only need to hold all of the money inside an ISA on the 5th April to ensure that year’s allowance and any previous allowances are protected. You can then take it all out from 6th April and not put it back in until the next 5th April. Now, I know what you might be thinking. You still need the actual cash to deposit into the ISA to make these numbers work and yes you are right. However, here are just some of the ways you could make it work using other money not originally allocated for investing. #1 – Using money you have previously lent to your limited company #2 – Using dividends from your limited company #3 – Cash savings allocated for spending or a rainy day #4 – Allocate money to ISA first then pensions Whilst a Flexible ISA is a great product, they are not that easy to come by. Most stockbroker accounts like Hargreaves Lansdown, AJ Bell, Interactive Investor etc at the time of writing do not offer one for their Stocks and Shares ISA. This is probably not a bad thing as you don’t really want to be investing your Flexible ISA money in the short term if you are only using it to build up your allowance for the future and will shortly take it back out again. Luckily, again at the time of writing, there are quite a few high street banks that do offer a Flexible ISA including the likes of Barclays, Lloyds, Nationwide and Halifax. It’s probably a good place to start with the bank you do your normal day to day banking with as this will probably be quick and easy to set up. Remember we are not after the best interest rate here as for the majority of the time the money is going to be pulled out of the ISA. Be careful not to hold more than £85,000 with one banking institution though as this is the deposit protection limit. A final key point is that if at any point you don’t fill your Flexible ISA with the cash needed to protect your built up ISA allowance then you will lose the previous years’ allowances and you will be back to starting with a £20,000 allowance. This ISA hack is a tactic that helps you secure a win in the tax game. #isa #increasingyourisaallowance #taxtips