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We are nearing the end of the financial year (2011/12) which ends on the 5^th of April 2012. During a financial year there are many allowances that the ‘HM Revenue & Customs allows an individual to take advantage of to help save on income and capital gains tax. These are offered as a means of encouraging individuals to save and invest in order to take ownership of their own financial future in a tax efficient manner.  Let’s face it nobody likes paying tax!

The main tax favoured savings and investment scheme that is accessible to all individuals over 16 years of age is an Individual Savings Account (Otherwise known as an ISAs). ISAs were introduced on 6 April 1999, replacing the earlier Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs). There are also Junior ISAs available for under 16s.

The maximum total investment for the 2011/12 tax year is £10,680 per individual.  Of this only £5340 of this may be invested within a cash ISA.  If you are between the ages of 16-18 you are only permitted to use the cash component.  A cash ISA is typically a savings account which is tax efficient and instantly accessible. With interest rates at historic lows a cash ISA may struggle to keep pace with inflation (cost of living) but are a better alternative to most savings accounts.  They say every penny counts and look after the pennies and the pounds will look after themselves!!

If you are over 18 then you can have access to the Investment element of an ISA. Think of an Investment ISA as an Investment that has a tax efficient wrapper put around it and generally advised over a minimum of five years to maximise returns. Due to the nature of the underlying asset classes within an Investment ISA they have a greater potential to counteract inflation. It should be noted that investments to fluctuate and can go down as well as up. It can be invested cautiously or for the more experienced investor  a more speculative Investment may be required perhaps with exposure to different geographical areas.

Investments can be made as lump sums or as monthly contributions through direct debit.  Money can be withdrawn at anytime without losing tax relief. It is not necessary to declare income or capital gains that may arise from ISA savings or Investments or even tell the tax man that you have an ISA. There are different types of ISAs available which can be tailored to an individual’s different needs and investment experience (or inexperience for that matter).

How often does the tax man look to give an individual a tax efficient means of saving  tax? Contact me (Richard Jones) for advice.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.