Play by the rules and don’t miss out on last call for Isas

THIS week is last call for Isas as the annual April 5 deadline for using your tax-free allowance is midnight on Friday, but experts warn that many risk losing out because they do not understand the rules.

The £20,000 Isa allowance is issued on a “use it or lose it” basis, so leave it too late and it is gone for good.

Yet one in five savers mistakenly think their allowance can be rolled over to the next tax year, while others wrongly think they can backdate their contributions, according to research from challenger bank Shawbrook.

Its head of savings Adam Thrower says Isas reset annually and not knowing the rules is no excuse. “The deadline is just two days away so there is no time to lose,” he explained.

Thrower urged savers who have made already made contributions this year to check how much allowance they have left. “If you haven’t reached your limit, consider contributing all you can now.”

Savers make other costly misunderstandings too. Many do not bother to put their savings in a tax-free cash Isa, because they assume they will not pay any income tax on standard deposit accounts.

Under a personal savings allowance (PSA) tax break, basic rate taxpayers may earn £1,000 in savings interest before paying income tax, falling to £500 for higher rate taxpayers.

That was usually enough when interest rates were near zero but with today’s best buy accounts paying around 5 per cent millions now face an income tax bill.

At that rate a basic rate taxpayer would exceed the PSA with savings of £20,000, falling to £10,000 for a higher-rate taxpayer. Thrower said: “Cash Isas offer a haven, letting your money grow tax-free.”