2014 ISA INVESTMENTS
In the past, we have always contacted you towards the end of the tax year about using up your ISA allowance, but this year we thought we would start early.
As you know, ISA’s are one of the most tax efficient and flexible means of saving. Each year we remind you to ensure that your ISA allowance is used up, either through new funds that become available, or from moving funds from other investments that you hold. This will mean that over time you are building up a tax efficient fund which can be used to provide a tax free income in the future. The current ISA allowance is £11,880 each, but will increase to £15,000 each from 1st July 2014. We will send you a reminder to top up your existing ISA’s nearer the time.
Cash sitting on deposit?
If you have cash sitting on deposit which you are not looking to access over the short term, then it makes sense for this to be held within the ISA environment so you can take advantage of the tax free growth over a longer period.
Take the example of two savers who both invested the full ISA allowance into the FTSE All Share Index each year from 2000. The early bird saver opened the ISA in May, towards the start of the tax year, while the other waited until the last few days of the tax year. Both would invest a total of £93,080 but the early bird could expect a return of £167,619 compared to £136,909 for the latecomer. That’s a difference of £30,710*.
*assumptions provided by Fidelity Jan 2014
Existing Investments outside ISA?
Assuming that you do not have any new cash readily available, investments held outside an ISA can be sold and the proceeds reinvested, this time within an ISA. This process is known as ‘Bed and ISA’ and for some of you, it is likely that we have been through this with you before.
The advantage of doing the Bed and ISA now, is that you shelter the capital (and any growth or income) from tax over the whole year and not just in the weeks prior to the end of the tax year. The money will be invested in either case and so it makes sense that it is invested in the most tax efficient way. You should note that the sale of an investment outside of an ISA may create a capital gain and may be subject to capital gains tax, however if this is the case we will let you know first.
You all know the benefits of ISA investing, so why not be the early bird this year and take advantage of the extra time in the tax free environment.
If you want any more information, or you want to know how to make a payment, just let us know.