1st July 2014
A couple who maximise their ISAs at the new £15,000 limit could be ISA millionaires within 20 years, allowing for investment returns says financial advice and investment firm Towry.
Andy James, head of retirement planning, Towry says: “ISAs may not be considered the most perfect investment and savings vehicle – in part due to difficulties many investors have faced in transferring their ISAs to different providers and the low returns many banks are currently offering on cash ISAs. However, they can be hugely beneficial as a long-term tax-efficient savings product, even more so now that the new annual limit has increased to £15,000 on 1st July.
“A couple who maximise their full ISA allowances from this tax year (ending 5 April 2015) onwards, could become ISA millionaires in 20 years even if the ISA limit did not move from its new £15,000 level, having £1,041,578 at the end of the 2033-34 tax year. This assumes five per cent annualised investment returns over the period, with no withdrawals or transfers.
“If the couple are planning to retire in around 20 years from now, that money could be withdrawn tax-free in their retirement. They could choose for example to take an initial income of £40,000 per year starting in 2034, increasing by 2 per cent each year thereafter to allow for inflation.
“As the graph demonstrates, even with ISA contributions ceasing in 20 years time and £40,000 being withdrawn annually (plus 2% per year to allow for inflation), investment returns of five per cent per annum will mean the portfolio will still continue to rise.
“It is clearly therefore advantageous to maximise your ISA allowance as well as your pension as much as you are able to, due to the tax-efficient nature of both products.”
Towry says its understanding of proposed/current tax legislation. Whether any tax will be payable, at what level it is charged and whether the individual qualifies for tax relief (if applicable) will depend upon individual circumstances and may be subject to change in the future.