Martin Lewis reminds LISA customers of withdrawal deadline
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The 2020/2021 tax year is less than a week away. Tax-free allowances and other benefits run from April 6 one year to April 5 the following year. This means those hoping to take advantage of the benefits from the current tax year have just a few days left to do so.
An Individual Savings Account (ISA) is a type of savings product available in Britain.
Billions of pounds are kept in individual savings accounts with more than £67.5bn was saved by adults in Britain in the last tax year alone.
These accounts allow you to save money tax-free in cash savings or investment account.
ISA accounts are offered by banks, building societies, insurers, asset managers and National Savings and Investments (NS&I).
What do you do with your ISA at the end of the tax year?
Each year you can save up to £20,000 in an ISA tax-free.
You cannot carry this allowance over to another tax year.
Instead, you should try to reach this amount as it means you are taking full advantage of this tax benefit.
Lifetime ISA accounts can only be topped up with £4,000 each year which means you can distribute the remaining £16,000 into other ISAs.
The ISAs which contribute towards this ISA limit include cash ISAs, stocks and shares ISAs, the Lifetime ISA and the innovative finance ISA.
For parents or guardians of children, you are also entitled to save up to £9,000 in a Junior ISA each year.
Anyone can pay into a junior ISA, up to a maximum of £9,000 in the 2020/2021tax year.
Junior ISAs work in the same way as adult stocks and shares ISAs and must be opened by parents on behalf of children.
Any money placed into a junior ISA cannot be able to be accessed until the child turns 18.
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Lifetime ISAs are a particularly good savings product because you receive a top-up from the Government for the money you save.
With the LISA you can get up to £1,000 a year from the Government up until you reach 50.
This means if you open a LISA at 18, you can get a total of £33,000 from the Government if you continue saving until you reach 50.
Unfortunately, those born on April 6, are only able to receive £32,000 from the Government because of where the new tax year falls.
You can withdraw Lifetime ISA money once you’ve reached age 60 or earlier to buy your first property but be warned that if you take the money for any other reason (apart from severe ill health) you’ll pay an exit penalty which is currently 20 percent but is due to increase to 25 percent on April 5.
You may have earned money from dividends which may be subject to taxation.
To avoid paying tax on this income you can use it as part of your Personal Allowance.
You are also entitled to a dividend allowance of £2,000 each year with anything above this amount taxed at 7.5 percent for a basic rate taxpayer, 32.5 percent for a higher rate taxpayer and 38.1 percent for an additional rate taxpayer.
An investment pot which includes £100,000 which yields around four percent each year would likely incur £150 a year in income tax outside an ISA if you are a basic-rate taxpayer, £650 a year for higher-rate taxpayers and £762 a year for additional rate taxpayers.
You can also undertake Bed and ISA transactions to top up your ISAs.
Bed and ISA transactions let you take advantage of your tax-free ISA allowance even if you don’t have any new money to invest.
This means of savings is a way of transferring assets outside an ISA into an ISA so future investment growth is sheltered from tax.
The investments are sold, cash is transferred into the ISA and the investments are repurchased.
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