Get to know ISAs
PUBLISHED: 06:06 26 May 2014
For many years the individual savings account (ISA) has been considered the corner stone of financial planning, with the government providing us with the ability to invest tax efficiently each year. However, many don't understand, or take advantage of the benefits they offer.
In the current tax year you can save up to £11,520 into an ISA; this can be invested completely in a stocks and shares ISA or you can place up to half in a cash ISA.
The government first introduced this form of savings vehicle in 1987 with the Personal Equity Plan (PEP), and over the years these have provided people with the opportunity to save money away from the taxman’s eagle eye. Since then and since their transition to ISAs, you could have accumulated a total saving of £212,080. Assuming these funds were to have grown at an annual rate of 5pc, your investment today would have been worth £429,464. If the same amount were invested in a fund looking to mirror the performance of the FTSE 100 index, it could have grown to a figure in the region of £675,817 before the deduction of charges. These figures would double for a married couple utilising both their allowances.
While these figures are impressive, it is important to remember that past performance is no guide to future returns and using a stock market investment you could get back less than you originally invested. It is important to ensure you have enough funds on deposit for emergencies before considering any long term investment and any investment is then tailored to your aims, objectives, risk tolerance and capacity for loss.
Next tax year (2014/15) the allowance is set to rise once again to £11,880 and we hope that future chancellors will keep increases in line with the consumer prices index going forward. Unfortunately there has also been rumour that, not unlike pension savings, ISA investments may be hit with their own lifetime allowance, effectively limiting the amount you can save into them during your lifetime. While this remains speculation, the key thing to remember is that if you don’t use this and every tax year’s allowance, you lose it!
So, where possible it is advisable to save what you can, even if this is done through regular monthly savings. It is also worth remembering that you can utilise your ISA allowance by moving existing investments. If you have no cash available, but have an existing unit trust, this money can be moved over to an ISA. This not only utilises your ISA allowance, but also could take advantage of any unused capital gains tax (CGT) allowance.
Your annual ISA subscription should be considered as only one element of your overall wealth plan. For a free initial, no obligation meeting to discuss this and any other matters please contact Lovewell Blake Financial Planning Limited on 01603 619620.
Please note that this article is provided for your information only. While every effort has been made to ensure its accuracy, information contained herein may not be comprehensive and you should not act upon it without seeking professional advice.