Savings-savvy doctors and dentists will likely already know about the annual £20,000 Individual Savings Accounts (ISA) allowance every individual has. Plus, that the deadline to contribute the full amount into your ISA is 5 April. They will also know that ISAs have become a fundamental component of financial planning since there are numerous benefits.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
Despite these benefits, total ISA contributions have declined in recent years. However, if you want to maximise the tax-free allowance you have been given, you only have until the end of the tax year – otherwise you will lose it.
ISA Benefits
ISAs are a tax-efficient way to hold a wide range of investments, including bonds, equities, property, multi-asset funds and even cash, allowing you to control where your money is invested.
Among the advantages of ISAs are:
- No Income tax on interest payments (which are made by bond funds) or dividends (which are paid by equity funds).
- You can withdraw your money whenever you need it.
For more information about ISAs, review our ISA deadline fact sheet.
Contribution decline
The main reason total ISA contributions have fallen over the past few years is because of the decrease in the usage of cash ISAs. These have declined by over a third from 2014/15 to 2016/17 for two main reasons:
- Inflation is on the rise, resulting in rock bottom interest rates and limited competition between banks, providing less than favourable returns.
- Since the personal savings allowance was established in the 2016/17 tax year, many individuals don’t need an ISA to elude tax on their deposit interest.
However, all hope is not lost. While Cash ISA contributions have fallen, Stocks and Shares ISA contributions have reached record levels. Our Individual Savings Factsheet goes into detail about the different types of ISAs and their contribution limits to help you determine how to distribute your funds.
The end of the tax year often means many rush to top up their ISAs. But the better option is to start your contributions at the beginning of the tax year to maximise the amount of time your money is tax sheltered.
Our Financial advisors will be able to find other ways to help streamline your finances, maximise your investments, and provide guidance on ways to save money before the end of the tax year.
Discuss your investments with a specialist
Dental & Medical Financial Services have been helping doctors and dentists with their investment planning for over 25 years.
Tel: 01403 780 770