Most people have heard of ISAs, but when I speak to new clients a surprising number of them are not taking up all their ISA allowances, even though they could afford it. For people who are complaining about paying too much tax, this seems to be a strange thing to do!
There are not too many tax concessions that are not under attack from the Chancellor as they are “too expensive”, but ISA allowances are being extended from £15,240 to £20,000 in April 2017. The stated reason is to encourage domestic saving, allowing for more investment by industry. Once money is in an ISA, it is not subject to Income Tax and not subject to Capital Gains Tax, which greatly simplifies investment paperwork and allows the owner to take out whatever capital they want without worrying about a tax bill.
ISA allowances are a “one year deal” only, so if you do not take up the allowance in the year it is current, you cannot claim it retrospectively, “use it or lose it!”. A systematic approach to taking up your ISA allowance and investing, long term in stocks & share ISA should mean that over time you could salt away a considerable sum. ISA millionaires are not unknown.
For those of you who want to start an ISA now, either in the rush between now and early April or less frantically in the new Tax Year, here is a checklist worth referring to, whether you are Doing it yourself or using an adviser: -
When do you want to be able to access your money? If less than 5 years, then you might be better off with keeping it as cash, but for any longer, stocks and shares are likely to be a better proposition, as they should outpace inflation and deposit account returns.
What is your personal attitude to risk? Would you keep your money under the mattress if you weren’t afraid of burglars? Do small drops in your portfolio value bring you out in a cold sweat? If yes to those, then you are looking for a low risk strategy and might be best getting formal advice, as a low risk appetite and lousy deposit rates give a loss in real purchasing power over time.
Are you by nature a risk taker? If so a higher risk portfolio, with direct purchased shares and foreign unit trusts may be more to your liking.
Have a cold look at how much it is costing you to hold your investments. Bizarrely, buying units direct from the provider may cost you more than using a platform to hold your ISA investments. Almost all platforms have some form of advantaged purchase arrangements, so you can take advantage of the platform facilities, (easy reporting, on line trading and access to your money), at low cost.
Think seriously about transferring in your small personal shareholdings not in an ISA to reduce the paperwork on eventual sale. The platform may insist on a sale and re-purchase, (bed and breakfasting), but it will remove CGT pain in future tax years.
Seek advice – never make an investment without understanding what you are buying and why, treating any ‘too good to be true’ claims with extreme caution. If you are happy doing your own research and taking the blame when it goes wrong, then be my guest, but for anyone else, get professional advice.
If you would like to know more about how we can help you plan and realise your financial goals then contact us at firstname.lastname@example.org or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.