Use it or lose it – unbiased.co.uk's guide to making the most of ISA season
Use it or lose it – unbiased.co.uk's guide to making the most of ISA season
28 February 2012
In the current low interest rate environment it has never been more important to ensure that you are as tax efficient as possible when it comes to your savings and investments. As the end of the 2011/2012 tax year draws ever closer unbiased.co.uk, the professional advice website, has put together top tips on making the most of your ISA and Junior ISA allowances, as well as dispelling some common ISA myths, with the help of its panel of independent financial advisers.
1. Karen Barrett, Chief Executive at unbiased.co.uk – Get ISA advice
“There are still far too many people who are not saving and investing in a tax efficient way and millions of pounds are set to be wasted this year alone by people not making use of their ISA allowance. With interest rates still at an all-time low, savers and investors need to be looking at where they can get the best returns on their hard-earned money. And if those returns can be tax free, then so much the better.
“With so many products available on the market it’s important to ensure that the strategy you choose for your money fits with your overall investment and savings plan. Seeking professional financial advice from an independent financial adviser is one of the best ways of getting your savings in order, not just in the current market conditions but also for your long-term financial future. An IFA will look at your overall situation and advise you on the best products and providers available on the market to suit your specific circumstances. To find an IFA simply visit www.unbiased.co.uk and enter your postcode!”
2. Danny Cox (Hargreaves Lansdown) – Basic rate taxpayers can benefit too
“A common ISA myth is that there are no tax advantages for basic rate taxpayers but this is not true. ISAs are free from capital gains tax and therefore basic rate taxpayers save up to 18% tax by using an ISA. Investing in fixed interest funds also saves 20% tax on the income and this is not included in the means test for age related allowances for the over 65s. Investing in a stocks and shares ISA normally costs no more than a taxable investment and therefore the tax benefits are free. Tax rates change regularly and investments in an ISA are ring fenced from further tax.”
3. Mark Wapshott (St Edmundsbury Financial Services) – Don’t wait until the end of the tax year to open your ISA
“Clients believe that they will get the same tax-efficiencies if they invest in an ISA on the last day of the tax year as they would if they invested on the first day of the tax year - however leaving it until the last day means that you miss out on up to 12 months of tax efficient growth and income per contribution.”
4. Jason Witcombe (Evolve) – Don’t over think your investment portfolio
“A big myth is that investing in an ISA is complicated. It can be as simple or as complicated as you want it to be. Think of your trip to the supermarket. There might be half an aisle dedicated to bread, which is a pain as it forces you to make unnecessary decisions, but does it really matter which loaf you buy? The sheer numbers of funds to choose from in your ISA can be overwhelming but if you stick to low cost funds and make sure you have a decent spread of asset classes and geographic regions, you can build a well diversified, buy and hold portfolio. That means you can simply ignore the other 99% of funds on offer. Then, when you do next year’s ISA, just top up those same funds. Don’t get sucked into the past performance stories that the billboards are peddling. Last year’s top performer probably won’t be next year’s winner.”
5. Adrian Lowcock (Bestinvest) – Drip feeding your money
“If you regularly top up your ISA then, with the new allowance rising each year in line with CPI inflation, it is important to check your monthly savings plans are in line with each tax year’s ISA allowance. If you have been putting £890 into your ISA each month then remember that you are able to increase it to £940 per month from 6 April 2012 (when your new ISA allowance begins at the start of the tax year). If you don’t want to invest at the moment but don’t want to miss your ISA allowance then you can place the money into a cash reserve account within your stocks and shares ISA and invest at a later date.”
6. Gordon Bowden (Quainton Hills Financial Planning) – Understand how your ISA performs
“People recognise ISAs as being either good or bad depending on their experience of how they have performed for them in the past. This influences their decision to invest in subsequent years. However, it is not the ISA that is good or bad, it is the underlying investment within the ISA that is good or bad. An ISA is almost always good because of the tax-favoured treatment. Individuals need to carefully choose the underlying investment to prevent it from turning bad.”
7. Patrick Connolly (AWD Chase de Vere) – Don’t look at performance in isolation
“You shouldn’t base investment decisions on short-term performance figures or market sentiment. All asset classes and most investment funds have periods when they perform well and periods when they perform badly. Many investors make the mistake of selecting funds that have produced strong short-term returns and where positive sentiment abounds. They often jump in after gains have already been made and when the period of good performance is coming to an end. They then face losing money as the period of poor performance begins. Rather than looking at performance figures in isolation, it is important to understand why a fund has performed well, or badly, and if that is likely to change, before making any investment decisions.”
8. Steve Laird (Carrington Wealth Management) – Make the most of your ISA allowance each tax year
“Many people think that if they already have an ISA (perhaps from several years ago) they can’t have another one! ISA allowances are available EVERY tax year – use them or lose them.”
9. Dan Clayden (Clayden Associates) – Saving for the kids
“JISAs can only be opened by the parent or guardian of a UK resident child who isn’t eligible for a Child Trust Fund (CTF) and is under the age of 18 (i.e. the child needs to be born before 1 September 2002 or born after 2 January 2011). However, anyone can make contributions into the child’s Junior ISA, up to the current limit of £3,600 each tax year. Management of the account is the responsibility of the parent or guardian until the child reaches the age of 16, and generally no withdrawals are permitted from the plan until the child reaches 18, when the fund will by default become a normal adult ISA to which the child will then have access.”
10. Jaskarn Pawar (Investor Profile) – Understanding Junior ISAs
“What you need to be aware of is that once money goes into the Junior ISA you cannot take it back out, except in very special circumstances. That means if you do invest into a Junior ISA there is no opportunity to change your mind further down the line. I am a big fan of accessing your money when you need it. So this is one rule you must appreciate carefully before opening a Junior ISA.”
For more information contact:
Lisa Grando/ Emily Falla/ Maddy Morgan Williams, Lansons Communications: 020 7294 3682
For expert commentary or case studies from over 150 media-friendly IFAs, journalists should visit www.unbiased.co.uk/bluebook.
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