Beat the ISA deadline

One of the most valuable tools available to investors focused on wealth creation for the long term

Individual Savings Accounts (ISAs) are one of the most valuable tools available to investors focused on wealth creation for the long term. There is no tax on interest payments, no higher-rate tax on dividend payments from 6 April 2016, no tax on capital gains to pay and no need to declare ISAs on a tax return.

Investment wrapper

An ISA is a tax-efficient investment wrapper in which you can hold a range of investments, including bonds, equities, property shares, multi-asset funds and even cash, giving you control over where your money is invested. It is important to remember that an ISA is just a way of sheltering your money from tax – it’s not an investment in its own right.

ISA limits

You can put money into one Cash ISA and one Stocks & Shares ISA each tax year. The tax year runs from 6 April to 5 April. Currently, you can save up to £15,240 in one type of account or split the allowance across both types. Your ISAs won’t close when the tax year finishes. You’ll keep your savings on a tax-efficient basis for as long as you keep the money in your ISA accounts.

Junior ISA limits

With a Junior ISA, you are free to invest up to £4,080 in the current tax year. You can switch from a Cash Junior ISA to a Stocks & Shares Junior ISA and back again.

What you need to know

Generate a tax-efficient income

When you invest through an ISA, your money is protected from HM Revenue & Customs, so you don’t have to pay personal Income Tax on any interest you receive from your investments. In a Stocks & Shares ISA, interest is generated by bond funds, which many investors choose because they offer the potential for a regular lower-risk income compared with equities.

This feature of an ISA is particularly useful in retirement, as it means you can hold your money in bond funds and generate a tax-efficient income on top of the payments you receive from your pension. It is also very beneficial if you want to generate long-term capital growth from your funds but prefer to take a cautious approach to investing.

Managing a potential tax burden

When your investments are held in ISAs, you don’t have to pay any Capital Gains Tax (CGT) on their growth. Of course, this may seem like a minimal benefit if your profits are well within the threshold for CGT, but it’s worth remembering that stocks and shares investments are for the long term. If your funds perform particularly well for several years, holding them in ISAs will mean you have full access to your money at all times without having to worry about managing a potential tax burden.

Freedom from CGT within an ISA can also be useful if you need to take an income from a portfolio of equity investments. Retirement tends to last longer these days, so it may be worth retaining your portfolio’s exposure to the stock market for a longer period.

Simplifying your financial administration

You don’t have to declare any investments held in ISAs on your tax return. This may not seem like much, but if you have to file an annual tax return you’ll know that any way of simplifying your financial administration can be very helpful.

More growth potential

One lesser-known fact about ISA investing is that you can choose to include some equities in your ISA investment and still have your income taxed as an interest payment. All you need to do is ensure that the funds you invest in within your ISA hold at least 60% of their portfolio in bonds. Although the rest is normally in equities, these investments are treated as bond funds for tax purposes. This means that your income from them is tax-efficient and your portfolio has more growth potential that could help lessen the effects of inflation on your portfolio.

Flexible and instant access

Unlike a pension or fixed-term investment vehicle, most Stocks & Shares ISA providers offer you flexible and instant access to your money when it suits you, without losing the tax benefits on the rest of your savings held within the wrapper. You can choose to withdraw some or all of your money at your convenience. However, it is worth remembering that once withdrawn, it cannot be returned.

Consolidating investments under one roof

If you feel that your existing ISA provider is no longer appropriate for your needs or you are looking to consolidate your investments under one roof, with an ISA you are free to transfer your investment between providers to suit your individual needs.

Please note: your current provider may apply a charge when you transfer your investment. While your investment is being transferred, it will be out of the market for a short period of time and will not lose or gain in value.

If you withdraw your ISA, you will automatically lose all of its associated tax benefits. So unless you need to liquidate your cash to spend yourself or to gift to someone else, you should always transfer it between providers to retain its tax-efficient status.

Junior ISAs: a straightforward way to save for a child’s future

Junior ISAs offer investors a straightforward way to save for a child’s future. No one knows what the economic situation will be like when your children or grandchildren have grown up, but the earlier you start the greater the service you are doing them.

Junior ISAs offer similar tax advantages to ‘adult’ ISAs but with a lock-in, making the child’s investment inaccessible until they turn 18. Like an ISA, Junior ISAs can invest in bonds, equities, cash, property and even multi-asset funds, giving you even more flexibility over the future of your child’s long-term savings.

Since April 2015, it is possible for existing Child Trust Funds (CTFs) to be transferred into Junior ISA accounts.

Embracing diverse viewpoints

No matter what your investment goals, we can work with you to develop the right portfolio for you. It’s important to know about the potential risks of your investments as well as the returns, and by embracing diverse viewpoints, better investment decisions can be made. To talk to us about the different investment opportunities that could be right for you, please contact Reeves Financial on 01403 333145 or email areeves@reevesfinancial.co.uk for further information.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.*

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.*

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.*

*only applies to Stocks & Shares ISAs

This is for your general information and use only and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. For Reeves Financial, published by Goldmine Media Limited, Basepoint Innovation Centre, 110 Butterfield, Great Marlings, Luton, Bedfordshire LU2 8DL Content copyright protected by Goldmine Media Limited 2016. Unauthorised duplication or distribution is strictly forbidden.