DIY Investor Magazine
/
March 2017
12
AND LISA MAKES SEVEN: UNPRECEDENTED CHOICE FOR
INVESTORS IN ‘ISA SEASON’
With the introduction of the flexible Lifetime ISA in April
there will be seven different types of ISA available to
savers and investors, each with unique characteristics
In a recent article
– DIY
Investor’s Humbug lamented that the proliferation of ISA
account types has robbed us of the intrinsic simplicity
of the original concept of a tax-free individual savings
account. However, each new account type targets
an issue such as tuition fees, property purchase, or
retirement and the greater flexibility and widened
investment universe make ISAs a key weapon in the DIY
investor’s armoury.
With subscription limits rising to £20,000 in 2017/8, ISAs
are something the government is keen to encourage,
and an increasingly viable and flexible alternative to
traditional pension savings accounts.
The 200-stron
is being
swelled by canny investors having transferred in
their PEP and TESSA assets; it is possible for those
subscribing to the max and achieving 5% investment
return, to amass a seven figure pot in just 24 years.
This overview may help you find the right ISA for you;
there will be one, because tax-free investing is rarely
a bad idea, giving you a fighting chance of improving
upon the miserly Cash ISA rates that are currently on
offer –
BASIC ISA
The original ISA comes in two iterations –
an
– putting a tax-free wrapper
around your savings and investments respectively; you
pay no tax on interest earned or investment returns.
You can save cash, invest in stocks and shares or a
mixture of both, with the flexibility to switch between
them.
Stocks and Shares can be a packaged product, either
actively managed funds or ‘passive’ investments
such as index trackers or
alternatively the DIY investor may opt for a
- essentially an empty wrapper held with an
execution only broker, sheltering their chosen portfolio of
investments.
Digital wealth managers – ‘robo-advisers’ – offer ISA
accounts which tax-wrap investments into either a ready
made model portfolio, or an individually risk managed
account.
Each tax year, April 6th to April 5th, every individual
is given an ISA allowance that they can either save or
invest in a tax-free wrapper; £15,240 for 2016/7.
Savers must be aged 16 or over to open a Cash ISA
and investors in Stocks and Shares ISAs must be 18; all
must be UK resident.
Best for: Since Cash ISAs replaced Tax-Exempt Special
Savings Accounts (TESSAs) and Stocks and Shares
ISAs, Personal Equity Plans (PEPs) in April 1999 they
have been the mainstay for millions of UK savers and
investors.
Cash ISA rates are low but new flexibility allows some of
the allowance to be invested into a Stocks and Shares
ISA in search of better returns; a longer investment
horizon – maybe five years plus – reduces the potential
for short-term market volatility to deliver losses.
Most allow regular monthly contributions into a selected
fund or investment with low fees; robo-advisers allow
regular investments into a diversified investment
portfolio that is constantly monitored and rebalanced
according to changing market conditions – see
