DIY Investor Magazine
/
March 2016
12
AN INTRODUCTION
TO ISAS
As we count down to the end of the tax year, this is
traditionally one of the busiest times of the year for DIY
investors of all persuasions – those that have not yet
got around to it will be galvanised into action by the fact
that once the calendar shows April 6th the 2015/6 ISA
allowance will be gone forever; those with a tangibly
slightly smug demeanour will be relishing the prospect
of wringing every last ounce of advantage out of the
new tax year by being an early bird investor.
ISAs are a powerful weapon in the DIY investor’s
armoury with recent changes to ISA rules bringing
greater choice and flexibility.
Savers starved of interest may find the tax free returns
of Cash ISAs an improvement, with instant access
if required or the ability to transfer to an investment
product in search of higher returns.
However, smaller savers may find that the introduction
of the Personal Savings Allowance (PSA), permitting
tax free returns of up to £1,000, may outweigh the ISA
benefit.
Managed Stocks and Shares ISAs allow the investor
to select a provider and investment fund that matches
their objectives and risk tolerance.
Junior ISAs allow you to give a loved one a financial
head start, and the Help to Buy ISA is there for first time
buyers; greater choice comes with the inclusion of peer
to peer lending and crowd funding in the Innovative
Finance ISA.
A Self Select or Stocks and Shares ISA is a tax free
wrapper that holds stock market and other types of
investments which comes with clear tax advantages but
also the risk that the value of your investments could go
down as well as up.
ISAs explained
An Individual Savings Account (ISA) offers UK tax
payers a way to either invest or save up to £15,240
(tax years 2015-6 and 2016-7) without paying tax
on any interest they receive and they are one of the
most popular and accessible tools offered by the
government to encourage you to save.
Rather than an investment in its own right, an ISA is a
‘wrapper’ in which you can shelter your savings and
investments from tax; within an ISA there is no capital
gains tax and no further tax on income or interest.
Any UK resident aged 18 or over (16 for Cash ISAs) can
invest in an ISA, there is no upper age limit and savings
can be withdrawn whenever you choose which makes
an ISA a flexible alternative to traditional personal
pensions when planning for retirement.
There is speculation that in his 2016 budget George
Osborne will align the tax treatment of ISAs and SIPPs
by taxing pension contributions and allowing tax free
benefits.
ISAs have been around for fifteen years now and with
increasing subscription rates it has been estimated
that by fully subscribing each year and achieving an
investment return of 5% p.a. after fees, it is possible to
build up a £1 million ISA pot within 29 years.
As the title implies, ISA allowances are individual so
it is possible for a tax-paying couple to shelter up to
£30,480 each year, although tax rules can change and
the benefits will depend on personal circumstances.
