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Savers urged to consider ‘best approach' for 'inflation-beating' returns as tax end looms

Daily Express logo Daily Express 19/03/2023 Temie Laleye

As the end of the current financial year draws nearer, people with are being urged to act fast to make the most of their £20,000 allowance before the deadline on April 5. The exemption is often referred to as a 'use it or lose it' allowance as people cannot carry forward unused allowances from previous tax years.

Mark Atkinson at Alliance Trust spoke exclusively with about the benefits of using an ISA and how it can set someone up for long-term success.

He said: "During times of inflation, it can be tempting to look at our portfolio and wonder if we're getting the best returns.

"But the best approach for the long term is still to have a place to put your money that can help you benefit from long-term patience - such as a stocks and shares ISA.

"ISAs come in different shapes and sizes, but they have one thing in common: you don't pay tax on profits.



"And every year, you can add more money - up to a limit that has gone up over time - to grow that tax-free pot.

"But our money is still vulnerable to inflation meaning the value of our savings deteriorates over time unless we beat it. "

Inflation (CPI), although moderating, has consistently sat above 10 percent. This is the highest it's been since February 1982 - 41 years - so investors are naturally trying to keep the return on their savings above inflation.

Mr Atkinson explained those who looking to prioritise growth, and who are looking to hit longer-term financial targets, should consider stocks and shares ISAs for the coming year.

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The relatively low take-up is surprising; as well as earnings and dividends within the ISA being both Capital Gains and Income Tax-free.

He added: "They can offer strong returns and inflation-beating value in the long run."

Saving in an ISA offers some great tax-related benefits and many may not realise that using their ISA allowance is more important than ever this year, due to some upcoming changes to tax allowances.

Firstly, the tax-free dividend allowance, the amount of dividend income savers can earn each year from stocks and shares before they pay tax on it, will be halved from £2,000 to £1,000 a year from April 6.

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This will then be halved again to £500 from April 6, 2024 - yet all dividend income is tax-free in an ISA.

Secondly, the tax-free allowance for capital gains will reduce from £12,300 to £6,000 from April 6, 2023, and again to £3,000 from April 6, 2024.

However, there is no capital gains tax (CGT) due on stock market gains inside an ISA.

This means taking advantage of the tax-free allowances on an ISA is crucial for those looking to reduce potential tax liabilities.

All interest earned from interest-bearing investments in an ISA is not liable to income tax. These investments include corporate bonds and gilts.

While the £20,000 tax-free limit on money put into Isas was frozen for the upcoming tax year, the Treasury's Spring budget policy costings document has cost up future tax years based on the Isa allowance rising in line with CPI inflation.

If the costings are indicative of future policy, it suggests that from the 2024/25 tax year, there might finally be some upward movement on this annual allowance.

Meanwhile, the Office for Budget Responsibility (OBR) forecasts the rate of inflation could fall to 2.9 percent by the end of this year.

If the interest rates on savings accounts stayed at their current level, this would make some inflation-beating.

Treasury-backed bank NS&I has also been told to increase its deposits - which could mean rate rises for its savers.


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