There are less than two weeks to make the most of this year’s ISA allowance, although as I write this I appreciate the hypocrisy as I am not someone who is going to get anywhere near putting in the full allowance before the end of the year.
If only I had the trust fund of prime minister Rishi Sunak, who released his tax return this week revealing he earned £4.8m over the past three tax years from US-based investments, which are held under a ‘blind management arrangement’.
All of these earnings were subject to dividends and capital gains taxes, which are going up from 5 April for everyone – even the prime minister.
In total the prime minister paid just over £1m in UK tax over the course of the three years, an effective rate of 22%. However, thanks to his own chancellor Jeremy Hunt this should rise next year.
This is because the rate of tax is effectively increasing, because of falling thresholds. For capital gains, this is being slashed from £12,300 to £6,000 next month, before dropping again in 2023 to just £3,000. Similarly, the dividend tax allowance is being cut from £2,000 a year to £1,000.
Putting cash in an ISA means these headaches are completely avoided. Investors can put up to £20,000 – mercifully this allowance was not cut in the Spring Budget this month, although it was not raised either. For Sunak, this will barely make a dent, but for some it could be huge.
Daniel Hough, financial planner at RBC Brewin Dolphin, put some real-world numbers to the situation.
If you make a £20,000 gain on a portfolio held outside of an ISA and are a basic rate taxpayer, you will have just £770 to pay based on 10% of £7,700, he said, while if you are a higher rate taxpayer this would increase to £1,540.
From April 2024, the same situation will increase the tax liability to £1,700 for basic-rate taxpayers and £3,400 for those on the higher rate.
“Even if you’re in the fortunate position of being able to use all of your own £20,000 ISA allowance, you can contribute to your partner’s ISA to maximise the use of theirs as well,” said Hough.
As well as regular ISAs, parents and guardians can save into junior ISAs for their children, squirreling away another £9,000 tax free.
For inspiration, Trustnet has been flooded with ideas and there will be more to come next week as well for all those last-minute savers.
Tom Aylott wrote this week about the most common mistakes people make when they put cash in a stocks & shares ISA, including buying the previous year’s winners and worrying about timing.
In terms of what to buy, Jean-Baptiste Andrieux highlighted which of the eight investment trust ‘dividend heroes’ were worth buying, with experts keying in on their favourite four.
At the start of the month, I revealed the funds and trusts that would have made you an ISA millionaire, including those in the private equity sector, Asia specialists and tech investors.
Whatever you need to make an informed choice before the 5 April deadline, we’ve got you covered. And if there is anything you want to see on Trustnet, email me suggestions at Jonathan.jones@fefundinfo.com.