Cash and Shares ISA End of Tax Year, Use it or Lose it

By: Nadeem_Walayat

The 2008-09 tax year is fast drawing to a close by 5pm on 5th April 2009, many UK savers have not utilised their annual ISA allowances due to low interest rates. However as my indepth analysis has consistently pointed out that the current deflation will eventually give way to inflation and much higher interest rates and therefore the ISA's still remain important long-term tax free wrappers .

ISA savers and investors have just 3 days left for the current tax year, which effectively just leaves Friday and Saturday to act upon to ensure the tax free allowances are fully utilised. At this stage there is little point in sending off for a more favourable postal account unless the financial institution guarantees that they will open your ISA in the 2008-09 tax year, which means the best option is to walk into a high street branch and open an cash ISA account there and then for upto £3,600, though do ensure to ask that it will be opened in the current tax year. These accounts can then be moved in the new tax year to more favourable interest paying institutions.

Similarly deposits can be made into a self select shares ISA which would allow for an additional £4,000 to be saved. Note I say saved, as in the first instance the amount transferred into a self select ISA is held as cash until you chose to invest it, this enables the investor to park cash into the ISA account pending investment decisions or if you chose to change your mind during the next tax year to withdraw the cash out.

Summary of ISA Rules & Benefits

• The ISA accounts are TAX FREE, and do not have to be entered onto any tax returns. The equivalent taxable return on a 3% cash ISA for standard rate tax payers is 3.6%. For higher rate tax payers it is 4.2%.
• The income from tax ISA's does not count against many mean tested benefits such as Tax Credits.
• The Allowance for 2008-09 is £7,200, £3600 for cash and £4,000 for shares ISA's or £7,200 in a shares ISA.
• You can only open ONE New cash ISA per tax year, and you can add new monies to One Cash ISA per tax year (see transfers). Similarly you can open only one new Shares ISA per tax year.
• You do not have to open a Cash ISA with your existing provider, i.e. you can open an account at different providers every year.
• Most providers allow for transfers in. And ALL should allow you to transfer out.
• Once you withdraw from a Cash ISA you cannot then then re-deposit into. The £3600 limit refers to total deposited, and not maximum account balance. So if you deposit £3600, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £3600 deposit limit.
• To maximize your tax free interest, it is best to open your account at the start of the tax year.
• There is the facility to transfer Cash ISA monies into Shares ISA's but NOT from Shares ISA's to Cash ISA's .

A Selection of the best High Street instant access Cash ISA's

• Barclays 3.61% (their customer support is a joke, perhaps it has improved?)
• RBS 3.50% (need an existing account)
• Abbey 3.50% (includes a 2% bonus which can be taken away if you withdraw during the first 12 months)

Unfortunately the other cash ISA providers such as Nationwide and Halifax come in at an abysmally poor 0.25% and 0.5% respectively, perhaps as a consequence of the hundreds of billions of tax payer pounds loaned or injected to date?

The next article on this topic will cover a broader selection of the best ISA's for the new tax year, which savers can either deposit cash into or transfer in ISA's from the preceding tax year.

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By Nadeem Walayat
http://www.marketoracle.co.uk

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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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