Helpful article

How to make the most of a tax-free savings allowance

The early bird catches the worm, and investment is no exception!

Let’s talk about risk

The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Tax allowances and the benefits of tax-efficient accounts are subject to change and tax treatment depends upon your individual circumstances.

The early bird catches the worm, and investment is no exception! The new 2018/19 tax year begun on April 6th and your personal tax-free ISA allowance for this year is a healthy £20,000. Utilising your ISA allowance to invest tax efficiently can lead to significant savings in capital gains tax and even improve your potential returns, so we’ve answered some common questions about how to best use your ISA allowance to help you make the most of your opportunities this tax year.

 
 
Why invest in your tax-free allowance early?

Some people tend to wait until the end of the tax year to use their ISA allowance, but this can result in a) missing the deadline and losing out – with the ISA allowance, you use it or lose it! Or b) rushing into quick investment decisions in order to meet the year-end deadline. Investing early in the tax year not only avoids these scenarios, but can offer the potential for greater returns on your investment too. Put simply, investing at the beginning of the tax year gives your investment an extra 12 months to grow, plus an extra 12 months of tax-free returns. Over time, this can make a significant difference to the overall dividend you receive on your investment. Investing early also allows you to invest small manageable chunks throughout the year.

What types of ISA can I use my allowance in?

You have a total tax efficient allowance of £20,000 for this tax year. This means that the sum of money you invest across all your ISAs this tax year (cash or investment) cannot exceed £20,000. However, it’s important to bear in mind that you have the flexibility to split your tax-free allowance across as many ISAs and ISA types as you like. For example, you may invest £10,000 in a stocks and shares ISA and invest the remaining £10,000 in a cash ISA. This is a useful option for those you want to use their investment for different purposes and over varying periods of time.

Which investment product will make the best use of my tax-free allowance?

At BMO, we offer two main types of tax-efficient ISA – our Investment Trust ISA and our Junior ISA (JISA). The key difference between these two options is that the Junior ISA is specifically designed to offer families a tax-efficient way to invest for a child’s future in the child’s name. With a Junior ISA, the maximum investment for the 2018/19 tax year is £4,260, which is a slight increase on last year. A Junior ISA is great for those who are aiming to give their children a potential head start for their future. Each child has an individual allowance of £4,260 which sits under their name and therefore doesn’t affect the £20,000 allowance that an ISA provides to the parent(s) or family members/friends that may contribute to the JISA.

What are the benefits of a BMO stocks and shares ISA or Junior ISA?
  • Flexible savings: You can invest with a lump sum as low as £500, or if you would prefer to invest little and often via monthly direct debit, your investment can start at £30 per month for Junior ISA or £50 a month for an Investment Trust ISA.
  • Tax-efficiency: On both of our ISA products, you won’t pay any additional income tax or capital gains tax on the returns you make, giving you the opportunity to make more of the money you’ve saved.
  • Long-term potential of stock market investment: A stocks and shares ISA allows you to tap into the stock market and the skills of our fund managers to potentially make your investments grow over the long-term.
  • Range of investment trusts to choose from: Junior ISA and Investment Trust ISA customers can build a portfolio of trusts to invest in from our range of 10, depending on your goals. You can select any combination of investment trusts you like.
What are the risks of a BMO Investment Trust ISA or Junior ISA?

There’s an element of risk involved with any stocks and shares investment ISA or Junior ISA. The value of your investments can go down as well as up and you may get back less than you originally put in. You need to be aged 18 or over and be a UK resident (although a child can open and look after their own Junior ISA from the age of 16), and you should consider this as a longer-term investment. Tax rules can change and everyone’s tax benefits are unique to their own circumstances.

How do I get started?

Make the most of your tax-free allowance this tax year by planning your investment as soon as possible. If you’re ready to open an investment with BMO, apply online or contact 0800 915 6017 to begin investing.

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Let’s talk about risk

The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Tax allowances and the benefits of tax-efficient accounts are subject to change and tax treatment depends upon your individual circumstances.

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Whether you’re looking to invest for your next big adventure, a deposit for a house or you simply want to put money aside for a rainy day, our plans can offer you the chance to invest for your future in a tax-efficient way that gives access to the long-term potential of stock market investing.

This section of the website is directed at persons who are located in the UK. Please read our full terms and conditions and the relevant Key Information Documents (“KID”) before proceeding with any investment product referred to on this website. Nothing on this website is, or is intended to be, advice to buy or sell any investments. If you are at all unsure whether an investment product will meet your individual needs, please seek advice.