Everyone is permitted to invest in an ISA each tax year, up to a maximum amount. If you have yet to reach your full allowance for 2021/2022, then you will need to act quickly if you want to capitalise on it – the deadline is coming up on 5^th April! ISAs have many forms and this article will concentrate on stocks and shares ISAs. If you take out one of those, you need to be prepared for the long haul. Stocks and shares are notoriously volatile and can easily increase or decrease depending on economical whims and other factors. We have all heard reports on the news about how a throwaway comment by a thoughtless world leader can send indices into turmoil…

Generally, over many years, the overall trajectory is upwards and you are likely eventually to make a profit. (Of course, remember investments always involve various risks, and you may get back less than you put in. There is a risk of losing the capital invested.) The trick is not to panic and pull your money out when values are low. This requires planning to avoid that pitfall. You need to be sure you will not require that money within the next five years at least.

Whichever route you use to set up an ISA, there will inevitably be fees to pay. Some ISA providers will deduct the fee from the amount you put in, which means that technically you could be under-using your allowance. Others will let you pay the fee as an additional contribution separately from the ISA total. Check first with your provider, intermediary or financial adviser how this should be managed. The last thing you want is to have money returned along with a patronising communication about breaching the limit.

Tax free

ISA gains are free of tax, which is a significant advantage. This still applies even though interest and dividends are less punitively taxed than when ISAs were first introduced. All this could change in the future, of course. Also, if you are a citizen of another country, your ISAs could be subject to tax there even they are not taxed in the UK currently.

Unlike with some transactions, there is no facility to carry over your ISA allowance into a subsequent tax year. If you do not use it, then you will lose it, as the old cliché suggests. Bearing in mind some of the bureaucracy that can be involved, it is best to take action sooner rather than later. Even if you are super-organised, delays by other parties could take you past the cut-off with little or no redress. Some people try to time the market and buy at the lowest dip of the curve. However, towards the end of the tax year, it is better just to get on and place your investment. There will be time enough to allow for growth over subsequent years, which should ride out the expected peaks and troughs.

As with any financial product, you need to scrutinise the small print and make sure it is the right decision for you. Independent advice should be sought if necessary. You may find The Motley Fool UK’s top-rated stocks and shares ISAs helpful.

The post Stocks and shares ISA: do not lose your allowance appeared first on The Twelfth Magpie.

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With rising interest rates, households and individuals will be looking for ways to balance their finances more carefully. One mechanism worth considering is the offset mortgage.

Background

Offset mortgages have fallen into relative abeyance in recent years. They are not suitable for everyone and can take some getting used to. Nevertheless, they remain a viable method for trying to reduce outgoings.

Have you ever wondered about the paradox between paying interest on your mortgage while receiving a less generous rate on your savings? This was particularly stark when earned interest was taxed more heavily than currently. The idea of an offset mortgage is that you have a linked savings account that technically attracts no interest and, thus, is shielded from the tax office and other parties. At the same time, you are only charged interest on the remaining balance of the mortgage.

So, if your mortgage is £100,000 and your savings are £10,000 then you effectively only have a £90,000 mortgage. Your monthly repayments will usually be taken out of your independent current account as normal. Mortgage interest is calculated daily and takes account of fluctuations in your savings and payments as well as any change in variable interest rates. As with mainstream mortgages, offset ones can also include options such as fixed rates and discounts.

Pitfalls versus advantages

As a result of any so-called offset benefit incurred, lenders may offer a choice between reducing monthly payments or decreasing the overall term of the mortgage. However, you need to be aware of any early redemption penalties and factor them in to your calculations. There are circumstances under which it is better to keep a mortgage going, even at a low level, rather than paying it off altogether.

Interest rates on offset mortgages have traditionally been higher than on conventional ones. However, some people find that the gains outweigh even this extra expense. When it comes to overpaying, offset mortgages are generally more flexible in the proportion that lenders will allow you to pay. Again, you will have the option to reduce the regular payments or the total mortgage duration. Alternatively, there is greater scope for increased borrowing if required.

In the unlikely circumstance that your savings are greater than your mortgage debt, you will not be granted interest on the positive savings balance. In other words, it will do nothing for you. This is more likely to happen towards the end of the term. If you finish your mortgage still with savings, the lender will channel them into one of its alternative types of account until you decide what to do. This may or may not pay interest.

Irregular earnings

Of course, not everyone has a large savings pot, as most of their money is ploughed into the mortgage. However, some people will come into large sums at times, followed by drought periods with relative paucity of income. The associated savings account acts as easy access via your current account. You can withdraw unlimited amounts as often as needed, up to the maximum held. However, there are always exceptions, and lenders’ terms and conditions of service should be checked judiciously.

Do not be frightened of an offset mortgage, but do make sure it will be appropriate for you and seek advice if necessary. You might also find The Motley Fool UK’s mortgage guide and mortgage calculator helpful.

The post Interest rate rise: offset mortgages may set you off well appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

National Insurance (NI) is a rather strange compulsory income deduction that harks back to times when an employee worked regular full-time hours for one employer for years on end. Social trends have changed considerably since it was introduced and yet its structure does not seem to have caught up.

Irregularity

Temporary and bank workers can be caught out by the fluctuating nature of their assignments. Because NI is levied per set time period such as a week or month, there is less flexibility than with tax, which is eventually reconciled over a whole year. It can make a difference whether you are paid weekly or monthly. You may or may not have a choice over this and if you do, then it can be difficult to determine which one is better for you.

Zero-hours staff may have more than one employer and, hence, could end up with greater National Insurance contributions than if all hours were with one allocation. It could be that they have a main substantive job and then do extra bank shifts if needed, which may be classed as a separate employment even within one organisation. You can contact the authorities in advance to ask for deferment, or at the end of the financial year for a refund, but this is not always guaranteed.

Releasing payment

Temps may have some control over when they submit their time sheets and get paid. Thus they can deploy strategies to manage National Insurance contributions and taper their earnings and/or hours to fit in with any state benefits limits. Any self-employment also needs to be taken into account.

There is no easy or set way to work all this out optimally. Each person will develop their own methods or broad principles depending on their abilities and circumstances.  Often, sadly, this is learnt the hard way (which is partly what prompted me to write this piece).

Thankfully, the days of filling in paper time sheets, trying to catch elusive managers for ink signatures and relying on the post or fax machine are mostly over. However, you do still need to be organised and hope your authoriser responds promptly to electronic requests. If a time sheet is rejected or queried and payment subsequently delayed, this can have implications for your calculations. You need to be aware of pay cut-off dates and deadlines, which may change over holiday periods, and use them to your advantage if possible.

Triggering payment may also activate annual leave accumulation, which needs to be handled judiciously to ensure that you do not lose it. There may be a requirement to take all your holiday within a year. In a similar vein, you need to be careful about postponing payment for too long or you may not be granted the leave allowance for that shift. Corporate budget-holders may also object if your financial creativity is causing anomalies for them.

The NI system is immensely complicated and I cannot pretend to understand its ramifications myself, nor advise anyone else. However, if you are aware of some of these pointers, then that is a good start! You might also find The Motley Fool UK’s income tax calculator helpful.

The post National Insurance for temps: some navigation suggestions appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?