The arrival of the new tax year on 6 April means it is time to consider your Individual Savings Accounts (ISA) investments, which will celebrate their 20th birthday in April.
Over the last 20 years, the maximum annual contribution has risen from £7,000 per tax year to £20,000 for 2019/20. If you managed to set aside the maximum each tax year since 1999/2000, you would now have placed over £205,000 into ISAs and largely out of HMRC’s reach.
The relatively simple single investment option has also morphed into a range of plans covering everything from retirement planning (the Lifetime ISA) to children’s saving (the Junior ISA).
However, one aspect has been common throughout the ISA’s lifetime: new investment is concentrated at the end of the tax year. For example, in the 2017 calendar year Investment Association data shows that net ISA investment in the second quarter was £1,421 million against a net total of £1,068 million for the entire year (the first and fourth quarter showed net outflows).
This means, if you are in that ‘leave-it-until-the-last-moment’ majority, now is the time to start thinking about your 2018/19 ISA investment.
The benefits of ISAs
Whilst the value of ISAs has changed over 20 years, as successive Chancellors have altered the tax treatment of interest, dividends and capital gains, the main tax advantages are largely unchanged:
- There is no UK income tax to pay on interest, whether from cash or fixed interest securities. With low interest rates and the personal savings allowance of up to £1,000, this benefit is less valuable than it once was.
- There is no UK tax to pay on dividends – This is a more valuable benefit now the dividend allowance is £2,000 and even basic rate taxpayers can face 7.5% dividend tax.
- There is no capital gains tax on profits.
- There is no personal reporting to HMRC.
One extra feature added in recent years is the ability to allow ISAs to be effectively transferred to a surviving spouse or civil partner on first death (the value of those ISAs could always be transferred but, instead of the ISA tax advantages being lost it’s now possible for those funds to be kept within an ISA wrapper and the tax advantages retained). However, ISAs ultimately remain liable to inheritance tax unless appropriate AIM-listed investments* are chosen.
For year end ISA investments and a review of your existing holdings, please contact us.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
The Financial Conduct Authority does not regulate tax advice.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
*Alternative Investment Market (AIM) shares are very high risk investments. You could lose some or all of your capital. Often there is no market for the shares and it may therefore be very difficult to make a disposal.