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Spend a little time… 9 things to consider before/when you cash in your ISA

17th September 2019

So…what’s YOUR ISA for?

If you’re reading this, the chances are you’ll already have an ISA (Individual Savings Account) and will have been tucking away your hard-earned cash and – more importantly! - making the most of your tax-free allowance on the interest earned for some time now.

ISAs have been around for 20 years, replacing PEPs (Personal Equity Plans) and TESSAs (Tax-Exempt Special Savings Accounts).

But aside from maximising the obvious tax benefits…did you have an ‘end goal’ in mind when you first opened your ISA?

And how do you now plan to cash in on all those years of tax-free saving?

Well, to begin with, (and you probably know this anyway) you don’t HAVE to cash the whole lot in and close your ISA…

But there are several different types of ISA; each is different (Instant Access, Fixed Rate etc) and – depending on which yours is – there may be restrictions or charges for making withdrawals.

Rather than going into the individual characteristics of each ISA here, it’s best to check on the terms of your own account carefully, as there may be fees and penalties applicable that could scupper – or at least, take the shine off – your spending plans.

For now, let’s look at just a few of the ways you can start to enjoy the benefits of all your patient, prudent, tax-free saving…

Spend…a little time

Even if you have/had a clear idea on how you’re going to spend your ISA ‘nest-egg’, don’t let the money burn a hole in your pocket straightaway.

As with all financial outlays, whatever you have in mind, it’s better to take your time, shop around, find the best deal possible and consider all options before splashing the cash. After all, you’ve saved this long – no sense in wasting the money unnecessarily…

There’s ‘mortar’ think about…

Maybe you’ve ear-marked your ISA funds for a big home improvement project – an extension, a new roof, a conservatory or a complete home makeover, for example.

Investing in bricks and mortar – especially the more permanent type of property modifications – is always a fairly safe bet… and done properly, they can actually add value to your home.

That way, you could actually be RE-investing the money from your ISA!

Driving ambition…

For most people, a new car is very often high on the list of things to spend a significant amount of money on.

But before you get to the showroom, put the brakes on for a moment…

A pristine, brand new motor straight off the production line is fine – but it’s also a well-known fact that nothing depreciates faster than a new car as you drive it off the forecourt.

If you’re careful about making the most of your money, a used car might be a better – and more economical – option.

Even a very low-mileage vehicle just a year old could save you £000’s over the price of a new one – with the added advantage that any ‘new car’ teething troubles will already have been ironed out. It’s certainly worth thinking about…

Travellers’ checks…

No, ‘checks’ isn’t the American spelling in this case – but, rather, the sort of precautions you might want to take before splurging on a ‘once-in-a-lifetime’ holiday…

Once again, it’s all about shopping around and getting the best deal possible, particularly if it’s a trip abroad or a luxury cruise you’re thinking of.

There are plenty of ‘off peak’ bargains to be had – particularly if you’re not tied to a break during the school holidays.

And if there are no kids to be factored in alongside how many t-shirts to pack…you’re in for an altogether less costly and more peaceful time all-round!

Just kidding…

Speaking of the children…you might want to use some of the proceeds from your ISA to treat them, too…

You could get them into the savings habit themselves…by opening them a Junior ISA of their own. There are tax benefits for parents, too, who can contribute over £4,000 each year (£4,368 for the 2019-20 tax year) into a Junior ISA per child, in addition to their own annual ISA allowance!

Time (and money) on your hands…

Now might be the time to use your ISA cash to fund a new interest/hobby – or invest in an existing passion…a new set of golf clubs, a better guitar, skiing lessons (at a luxury resort?) …or whatever floats your boat

Or you might decide to…

…become a qualified success…

Knowledge doesn’t come cheap – especially since the introduction of student tuition fees. So you might decide that with your ISA money you can now justify paying for the college or university course you’ve always wanted to do – a night class, a summer school…or an Open University degree, perhaps?

The retiring type…

You may, of course, have longer-term savings plans – and one eye on the future – and opted for a Lifetime ISA…

You can use a Lifetime ISA to buy your first home or save for later life – so long as you’re over 18 but under 40.

Each year, until you’re 50, you can put in up to £4,000 each year – and the government will add a 25% bonus to your savings, up to a maximum of £1,000 a year.

But once you turn 50, you can no longer pay into your Lifetime ISA or continue to earn the 25% bonus – although your account will stay open and your savings will still earn interest or investment returns that you can draw from.

Another great save…

Of course, you don’t HAVE to spend your ISA cash – you could always simply reinvest it and watch it grow even more!

Depending on your previous investment experience and your own attitude to risk, you could always think about splitting your money between, say, a cash ISA and a stocks and shares ISA.

The only thing to remember is that your tax-free ISA savings in any single tax year can’t exceed £20,000, even if they’re split between different ISA accounts.

So, if you’re fortunate enough to have more than £20,000 to re-invest, you may have to tuck away the ‘surplus’ in a suitable alternative savings account until the beginning of the next tax year, when you can then transfer up to a further £20,000 into your ISAs.

To find out more about the ‘cans and can’ts’ of your particular ISA, you should always read the terms and conditions carefully, or – better still – pop into your local Leek United Branch.

But however you choose to use the proceeds of YOUR ISA, one thing is for certain – you shouldn’t find it too taxing…!

 

Tax treatment depends on your individual circumstances and may change.

Image By: Faizal Ramli/Shutterstock.com 

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