What are my limits?
Thinking about saving some extra pennies for a rainy day? Looking to open an ISA, junior ISA or a pension fund and don’t know where to begin?
When looking to invest into either an ISA or a pension- or maybe both- there are several factors to consider including accessibility, tax relief, inheritance rules and allowances. However, these can be tricky to understand – that is why we have cut out the jargon and laid out more simply how much you are allowed to save into both.
For each tax year, you are given an annual ISA allowance- meaning you have a limit to how much money you can save across all your ISA’s within the April to April window. The ISA allowance for 2021/22 is £20,000- meaning in total the money you save across your stocks & shares ISA’s, cash ISA’s, lifetime ISA’s and innovative finance ISA’s does not exceed this amount. The Lifetime ISA has a lower annual limit of £4000, and it is important to remember that this still counts towards your total £20,000 allowance.
There are two ways you can save based on this allowance:
Split your savings: For example, you could split the allowance and put £4000 in a lifetime ISA, £10,000 in a stocks & shares ISA and the remaining £6000 in a cash ISA
Use the maximum allowance: For example, you could put the whole £20,000 into a cash ISA or a stocks & share ISA
For many individuals, it may be that you will naturally make much smaller contributions and will not maximise the full £20,000 allowance, the figures used above are simply to demonstrate how the allowance can be broken down. Some providers have minimum contribution amounts that you can make towards your ISA on a monthly basis. You should factor this in when conducting your research.
Junior ISA’s Allowance
A junior ISA allows you to save tax-free on behalf of your child- and much like an adult ISA, junior ISA’s also have an annual allowance for the tax year. Previously, the limit for junior ISA’s were less than a quarter of the adult ISA allowance at £4368. However, recently the government has raised this allowance by 106% and the new annual allowance for junior ISA’s in 2021/22 is £9000. It should be noted when the child turns 18 the ISA becomes either a full cash or stocks & shares ISA and the £20,000 limit then applies. Funds cannot be withdrawn from a Junior ISA before the child turns 18.
There is no limit to the amount that an individual can contribute to a registered pension scheme, however there is a limit in which your contributions will receive tax-relief. Tax relief is limited to relief on contributions up to the higher of:
100% of UK taxable earnings, or
£3,600 (whichever is lower)
On top of this, there is an overall annual limit of £40,000, meaning individuals who earn more than £40,000 pa are still limited to this amount, or potentially less if subject to the tapering rules or the money purchase annual allowance. There are a range of considerations to factor in to your pension allowance, and this can be a complex calculation. You should speak to your financial advisor direct if you are unsure or would like specific advice on how much you can pay in based on the implications of your personal situation.
Please note, the information contained in this article is for informational purposes only and should not be construed as individual advice. If you would like further guidance on the above topic, or to speak to one of our qualified advisers, please visit our website at www.damgoodpensions.com or contact us on firstname.lastname@example.org