Three fund tips for early bird ISA investors

10th April 2015


The new tax year is upon us and that means a brand new ISA allowance and there are plenty of reasons to become an early bird investor.


The ISA allowance has been reset and you can now save £15,240 tax-free over the next year.


Laith Khalaf, senior analyst at Hargreaves Lansdown, said there are two types of ISA investor: ‘steady Eddies and double dippers’.


‘Steady Eddies are regular early birds, and open their ISA as soon as they can each year,’ he said. ‘Double dippers are last minute ISA investors, who take the opportunity to set up the following year’s ISA at the same time.’


Hargreaves Lansdown has seen an increase in the number of early bird ISA investors over the past seven years and in 2014, almost as many investors opened stocks and shares ISAs in the first month of the tax year as they did in the last month.


There are lots of benefits to sorting out your ISA, and your pension contributions, at the beginning of the tax year.


‘Early bird ISA and Sipp savers get almost an extra year of tax protection compared to last minute investors,’ said Khalaf. ‘For a higher rate taxpayer contributing the maximum amount, this could mean saving an extra £480 in tax on a portfolio of shares, simply by acting sooner rather than later.’


This figure is based on the maximum ISA contribution of £15,240 plus the maximum Sipp contribution of £40,000, totalling £55,240.


Khalaf assumed this is invested in a portfolio of shares yielding 3.5%, meaning dividend payment would be £1,930. Over the course of a year that would attract £480 in income tax for a 40% taxpayer or £590 for a 45% taxpayer.


There are also tax benefits on more modest sums: a £15,240 investment in an ISA plus a £10,000 Sipp investment would generate an income of £880 from a portfolio of shares yielding 3.5%. The potential tax saving would be £220 for a higher rate taxpayer and £270 for an additional rate taxpayer.


Fund ideas for early bird investors:


Khalaf has picked three funds he believes are a good bet for ISA investors.


Aberdeen Latin America fund: industrialisation, urbanisation and an expanding middle class make the long-term prospects for Latin America look promising in our view, though short-term  volatility in stock prices is inevitable, so this fund is only for investors with a taste for adventure. Fund charge: 0.85%.


Ecclesiastical Higher Income fund: a little-known fund, with a long and illustrious track record. This is actually a balanced managed fund with a healthy yield for income investors. It invests predominantly in equities, with some fixed interest to reduce volatility. Robin Hepworth, who runs the fund, looks for companies with a healthy yield he can invest in for the very long term. Fund charge: 0.48%.


Legal & General UK Index fund: a passive fund which tracks the FTSE All Share, offering investors simple access to the UK stockmarket at low cost. This fund is available from an annual fund charge of 0.06%.



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