9th March 2015
With about a month to go before the end of the tax year, financial boffins start to get very excited about ISAs and the investment airwaves become full of people prodding you to contribute to your ISA.
But why should you and what’s in it for you?
ISAs are a lot simpler than people make out. They are just tax efficient savings accounts where you can stick up to £15,000 in either cash or stocks & shares. Think of it like a see-through tub into which you can stash some money, and the interest or capital gains won’t be taxed.
If you have savings accounts or investments but do not take advantage of your ISA allowance, quite simply you’re probably paying more tax than you need to be. Throwing money into HMRC’s deep pit.
This year the Chancellor made some significant changes to ISAs.
Every adult can now invest up to £15,000 and this can be in either cash or stocks & shares.
Fancy a combination? That’s now fine. There’s also an allowance for the kids of up to £4,000 in a Junior ISA. From 6th April this year, these allowances will go up to £15,240 and £4,080 respectively. Pre December last year, to put it bluntly, any ISA holder’s benefits would die with them.
Now, the surviving spouse gets to inherit the full ISA allowance. That’s much fairer although be careful because this is just for spouses or civil partners and doesn’t apply to the kids
Confused about where to go? If you are in cash, there are lots of sites which will compare the best cash deals. The best cash ISAs where you can get your money with no delay are paying about 1.5% today. Do take the time to have a look at what’s out there and be really wary of just accepting whatever your bank offers you.
If you’re thinking about a stocks & shares ISA, have a look at what we call platforms. These are like online financial department stores, offering lots of choices and different brands. I wouldn’t go direct to a fund manager because it’s highly likely you’ll pay more, get less choice and a poorer service. If you are not a confident investor and want some tips and hand holding along the way, I like Bestinvest, Fidelity and Hargreaves Lansdown. Charles Stanley and TD Direct Investing are also nice options if you hold a few direct shares as well. If you hold an account which is larger than £80,000, feel confident and want a simple, low-cost option, I’d look at iWeb or Interactive Investor.
Finally, this is not just a really wealthy person’s game. The providers mentioned above will let you set up a monthly direct debit of £50 a month to build up a stocks & shares ISA – if you can spare this, it’s a good way to get started. If you have no spare cash but you have existing shares or investments outside of an ISA, you may well be able to move them into an ISA and take advantages of the zero capital gains environment that way. Get on phone and ask someone how it might work.
ISAs have become bigger, more flexible and easier to manage than ever. Don’t pay more tax than you need to!