ISAs: A Guide to Tax-Free Savings

Making the most of your annual ISA allowance. As interest rates dive to record lows, there’s never been a more important time to get the best possible return on your money. Key to doing this is ensuring you don’t hand over more cash to the taxman than you have to.

But does that mean investing in an offshore tax haven or working out a tax avoidance scheme? Not at all. Tax-free savings simply means making the most of your annual ISA allowance. Read this guide for more information...

What is an ISA?

ISAs, or Individual Savings Accounts, were introduced in April 1999 to enable people to save a certain amount of money each year without having to pay tax on the gains they make, or the interest they earn.

In other words, ISAs are an incentive for you to save.

Savings levels

Consumers can currently save up to £7,200 each tax year into an ISA. They can either invest the full amount into stocks and shares, or they can save up to £3,600 in cash, with the remaining balance invested in shares.

No tax is paid on the interest earned through cash ISA savings, while any money built up in an equity or shares ISA is free of capital gains tax, although a 10% tax is still automatically charged on any income from share dividends.

Is it still worth it?

Historical data from the Bank of England shows that the average returns paid on ISAs are typically higher than on other savings accounts, and this is before the tax advantage.

But more importantly, paying tax on savings actually eats into the returns you’re getting. For example, a higher rate taxpayer needs to earn 1.67% on their savings just to equal every 1% they earn through an ISA, while a basic rate taxpayer would have to earn 1.25%.

As a result, a higher rate taxpayer would have to find a rate of 5.01% on a normal savings account to equal an ISA rate of 3%. In the current climate, returns of 5% are hard to find, showing the benefits of using an ISA.

Although the tax-free returns benefit may not seem huge when you’ve saved only one year’s worth of the allowance, it will be fairly significant by the time you’ve tucked away £3,600 a year, plus interest, for 10 years!

Where to get an ISA

As with other savings accounts, shopping around for the best rate is key. You can find a selection of cash ISAs and shares ISAs on the Confused.com ISA page.

You can only pay into one cash and one shares ISA each tax year, so it pays to pick a good one.

If you already have an ISA but are worried that it’s no longer offering the best returns, you can move your savings into a new account. But it’s important you get your existing provider to transfer the funds for you. This will ensure you don’t lose the ISA status on the money you’ve already saved.

It’s also possible for people to transfer the money they’ve saved in a cash ISA into a shares one, although money in a shares ISA can’t be transferred to a cash one.

Sourced from Confused.com [Link]

Guide to Maternity Pay 2009

Know your rights before you go on maternity leave- If you’re a new parent, it can be tricky managing that work/life balance with the demands of paying off your credit card and household utilities.

Therefore, it’s important to know exactly what pay you’re entitled to when you go on maternity or paternity leave. Confused.com’s guide will help you to know your rights.

Statutory pay

In a nutshell, if you’ve been employed by your current company for 26 weeks by the time you are 15 weeks away from giving birth and you’re earning more than £90 a week, you’re entitled to Statutory Maternity Pay from your employer.

If you’re unemployed, or have been in your current job less than 26 weeks, you’re entitled to Maternity Allowance, which is paid by the state.

You can claim Statutory Maternity Pay (SMP) for up to 39 weeks but you need to tell your employer at least 28 days before the date you wish to start claiming. The earliest you can take it is 11 weeks before your baby’s due.

SMP is calculated at 90% of your average weekly earnings for the first six weeks, then up to £117.18 (£123.06 from April 5, 2009) for the remaining 33 weeks.

Company pay

The amount you get from your employer depends on whether the company has its own maternity pay scheme.

Check with your HR department for the exact details, but some companies pay your full salary for the first six weeks of maternity leave and offer extras after that.

If you can’t get SMP from your employer, you may be entitled to the Maternity Allowance, which is £117.18 (£123.06 from April 5, 2009) for up to 39 weeks.

Tapping into extra benefits

You’re entitled to take up to 52 weeks’ maternity leave in total. If your baby was born after October 5, 2008, your employer must continue to give your contractual benefits, e.g. gym membership, and your pension throughout your leave.

And to stay up-to-date with office life, you can take up to 10 ‘Keep In Touch’ days, allowing you to come into work during maternity leave.

Your employer may also offer a return-to-work bonus, which you can get as a lump sum when your leave ends. There may also be childcare vouchers and flexible working schemes available, which can help to ease you back in.

Government boosts

There are a number of financial benefits from the Government for expectant and new mums, which help with the costs of bringing up a baby. So you don’t have to rely too heavily on your savings.

From April 2009, all mums-to-be can claim a one-off tax-free payment of £190, called the Health In Pregnancy Grant. Once you’re more than 25 weeks pregnant, you can get a claim form from your midwife, who will confirm your due date.

Alternatively, if you, or your partner, are on Income Support or receiving a Jobseeker’s Allowance, you’re eligible for the Sure Start Maternity Grant - a one-off tax-free payment of £500 to help with the cost of bringing up your child.

Benefits from birth

Once your baby’s born, you might be entitled to tax credits if you work, but earn a low wage. Any parent with children under the age of 16 can claim a Child Benefit. This gives £20 a week for your eldest child and £13.20 a week for each child after that.

If you’re already receiving a benefit or you’re pregnant and under 18, you could qualify for Healthy Start vouchers, worth £3 a week. These can be used to buy milk, fruit and veg.

Find out more about these benefits and exactly what you’re entitled to at www.directgov.uk.

Taking paternity leave

For all those expectant fathers, when your other half gives birth, you might be able to claim Statutory Paternity Pay (SPP) from your employer.

To qualify, you must be the biological father or be taking responsibility for the child’s upbringing. You must earn more than £90 a week and have been working for your employer for 26 weeks by the 15^th week before the baby’s due.

After telling your employer you plan to take leave, you can take two weeks of SPP, which is £117.18 per week or 90% of your average weekly earnings if this is less.

Before baby arrives

Sorting out your maternity and paternity pay is one of the many things to do before your baby arrives. Then there’s the shopping list: prams, baby clothes, car seats, toys – your credit card could be in overdrive!

So set some time aside to sort your finances. Have you cleared your credit card? Are you on top of mortgage payments? Compare all of these and sign up for a great deal with Confused.com.

Once that’s done, it’s time to think about savings. If you’re pregnant or planning a family and are currently in full-time employment, the drop in wages can be hard to swallow when you decide to leave and bring up a baby. So as soon as you possibly can, you may want to consider making time to get a good savings account or ISA and stash as much cash in it as you can!

Sourced from Confused.com [Link]