An ISA, or Individual Savings Account, is often considered one of the best ways to save tax-free. While there are different types of ISA available, they are offered by numerous banks, building societies and financial organisations to help Britons to save. As the deadline for saving this year fast approaches, considering one’s actions could be key to securing easy wins on tax breaks.
One of the most impactful tax breaks has been highlighted by investment service, Hargreaves Lansdown, and could help many to cut costs.
An ISA, the organisation highlighted, can help Britons to shield themselves against the High Income Child Benefit Charge.
This is triggered when one parent in a household which is claiming Child Benefit has a taxable income of £50,000 or more.
Under HM Revenue and Customs (HMRC) rules, the tax charge is currently set at one percent of the Child Benefit received for every £100 of income over £50,000.
Hargreaves Lansdown cited an example of a single parent with two children who earns £50,000 a year, receiving £3,000 in interest annually on a large savings pot.
This individual, and those in similar circumstances, would have to pay £1,000 in higher-rate income tax after the Personal Allowance is taken into account.
With a total income of £53,000 a year, this person would also face a High Income Child Benefit Charge of £526 for her two children.
As a result, she would have to face a £1,546 tax bill, but taking action could mean wiping this out entirely.
However, there is a safety net as the ISA allowance will remain the same – at £20,000 – for the next tax year also.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, commented on the matter.
She said: “Your ISA could save more tax than you think.
“Most people know that an ISA can shelter your savings and investments from Capital Gains Tax, dividend and income tax.
“But there are some less-well known ways that the ISA can slash your tax bill.
“While the more well-known tax savings run into billions of pounds, the lesser known tricks can help people who have crossed the most punitive thresholds.”
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