Martin Lewis issues urgent ‘use it or lose it’ ISA warning as deadline looms

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With just days left until the annual ISA window closes, the Money Saving Expert (MSE) founder told readers to ‘use it or lose it’, adding: ‘Your money’s nicer in an ISA.’
And with this date looming large, Martin advises getting in on remaining deals sooner rather than later, ‘as some providers shut their (virtual) doors early.’

What is an ISA and how does it work?

Normally it’s just sitting there, so the tax collector can come and take a bite.

‘But think of an ISA wrapper like a protective piece of clingfilm you can wrap around some of the cake.

‘Once your cash is inside, nothing changes… the only difference is now the tax collector can’t eat any.’
Consumer finance guru Martin says Brit tend to be overly cautious and ‘underinvest’ as a nation because ‘we’re risk averse’.

But if you’re saving for the long-term and don’t need access to the money for at least five or so years, he claims: ‘On the balance of probability, investing in a broad spread of investments will usually substantially outperform savings.’

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Cash ISAs, meanwhile, are typically better suited for shorter-term goals, whether that’s paying off debt, building an emergency fund, or saving for a house deposit.

Using an extreme example to illustrate the point, he explains that if someone invested £20,000 and it grew to £2 million, the capital gains tax outside an ISA could be huge, whereas ‘inside an ISA, you’d pay no tax at all.’

POLL

Are you planning to use your ISA allowance before the deadline?

• Yes, I'm going to use it.

• No, I don't plan to use it.

• I haven't decided yet.

How much tax do you pay on savings?

However, many people avoid this thanks to allowances including:

• The £12,570 personal allowance.


• The starting rate for savings, which lets some lower earners have up to £18,570 a year of untaxed earnings and interest combined.

A cash ISA sits on top of those allowances, meaning interest earned inside it is never taxed and doesn’t count towards those limits.

Premium Bonds also provide tax-free returns, although they are capped at £50,000 total, rather than a yearly amount.

Investment are taxed slightly differently, normally covering:




• Capital gains tax on profits when assets are sold.

  You’ll receive a £3,000 a year tax-free capital gains allowance, with anything above that at 18% for those on the basic rate or 24% above that).



• Dividend tax on income paid by companies.

  You currently get a £500 annual Dividend Allowance, above which you pay between 8.75% and 39.35% depending on your tax rate.



• Tax on interest from cash held within investment accounts, charged at the same rate as savings interest.



‘Plus the returns in ISAs don’t count towards your annual allowance either, you get them on top,’ Martin adds.

Get in touch by emailing MetroLifestyleTeam@Metro.co.uk.