ISAs are important and popular savings products. The 2020/2021 tax year will come to an end in a matter of three days. The tax allowance is £20,000 and any unused allowance from the current tax year does not roll over to the next year. Reports have now emerged suggesting the allowance could be frozen for five years?
An Individual Savings Account (ISA) is a popular type of savings product available in the UK.
Billions of savers using these products with more than £67.5bn was saved by adults in the country in the last tax year alone.
ISAs enable tax-free saving in a cash savings or investment account.
These accounts are offered by banks, building societies, insurers, asset managers and National Savings and Investments (NS&I).
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Each year, you are entitled to save up to £20,000 in ISA accounts, you can save into as many ISA accounts as you wish, as long as you do not exceed this amount.
If you do exceed £20,000 you will encounter tax.
You cannot carry this £20,000 allowance over to another tax year.
Therefore, you should try to reach this amount as it means you are taking full advantage of this tax benefit.
The end of the 2020/2021 tax year is rapidly approaching.
Each British tax year lasts from April 6 until the following April 5.
With the £20,000 ISA tax allowance, you can only put up to £4,000 each year into a Lifetime ISA account.
You can distribute the remaining £16,000 into other ISAs including adult cash ISAs, stocks and shares ISAs, the Lifetime ISA and the innovative finance ISA.
Parents are also entitled to an additional £9,000 in Junior ISA accounts.
Parents or guardians of children can save into these accounts and they cannot be accessed by the child until they reach 18.
Junior ISAs work in the same way as adult stocks and shares ISAs and must be opened by parents on behalf of children.
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Could your ISA tax allowance be frozen for five years?
Savers will be hit with a five-year freeze on ISA allowances according to experts.
The ISA allowance will likely be frozen until 2026 according to the Telegraph.
The Treasury told the publication the current ISA allowance is “generous” and “continued to benefit the majority of savers”.
Millions of savers who regularly hit their £20,000 allowance will likely be disappointed by the news.
The £20,000 limit has not risen until 2017 but would stand at £21,077 if it had gone up with inflation in the past three tax years.
More than four million people used their entire allowance in the 2017-18 tax year, according to the latest official figures.
This equates to a little shy of one-fifth of ISA savers.