The increasing significance of ISAs

Finance in later life
by Skipton Financial Services

Bills are rising, inflation is rising, taxes are rising – our money is continually being stretched further and further in this difficult economic climate. Yet the good news is that ISA allowances too are rising; and they are an increasingly important way of protecting and potentially growing your money in a tax-efficient environment – particularly if you are approaching or have reached retirement.

Like taking regular exercise or filing away your receipts and statements – ISAs are widely considered to be a good idea, but often we allow other life priorities to get in the way. For each tax year, every UK adult has a specified ISA allowance they can use to shelter a portion of their investments – and any returns they generate – from the Taxman. Against the ongoing backdrop of banks and building societies paying historically low interest rates on deposit-based savings, along with higher levels of inflation, the tax-efficient benefits of ISAs become even more compelling.

The Government has recently announced that your 2012/13 ISA allowance will be increased to £11,280. But that doesn’t come into effect until 6 April 2012. Therefore, making the most of your 2011/12 allowance should be considered an urgent priority if you have yet to utilise your full £10,680 allowance, as it cannot be carried over.

There are two different types of ISAs which are explained below, and you can invest either a lump sum or make monthly contributions up to the ISA allowance limits within a tax year.

• Up to £5,360 of your ISA allowance can be used to save your money inside a Cash ISA. Apart from the tax-free status, a Cash ISA is operated like any savings account. Cash ISA providers typically offer easy access, fixed rate or notice options, enabling you to select an account best suited to your personal circumstances.
• A Stocks and Shares ISA involves investing your savings in a combination of assets; for example company shares and Gilts (loans to the Government which it uses for public spending). You can use your full £10,680 ISA allowance in this way (provided you have not used some or all of your Cash ISA allowance), and choose either to self-invest in different assets or to invest collectively in a unit trust (a more popular option). The latter is where your savings are professionally managed by a team, who invest portions into different asset types with the objective of delivering you rewarding levels of returns. Although these types of ISAs carry more risk, as your capital is not guaranteed and the value can fall as well as rise, the rewards can potentially be much higher when compared to a Cash ISA.

Thousands of people look set to miss out on using their ISA allowance to shelter part of their nest egg, thereby unnecessarily paying additional money to the Taxman.

It can appear complicated to invest your ISA allowance, especially if you have existing investments and are unsure which elements to transfer to an ISA. Yet it needn’t be difficult or time consuming to take advantage of the benefits of ISAs. Because there is no ‘one size fits all’ solution, it’s strongly recommended you hold a review of your financial needs with a financial adviser, who can help you to determine the right options for you.

Skipton Financial Services (SFS) offers no-obligation financial advice on utilising your ISA allowance. An SFS Adviser will take the time to understand your individual needs and future goals, before researching the market to make recommendations suited to your circumstances.

Stock and Shares ISAs are often more straightforward than you might think, and are particularly suited for investing towards medium and longer-term financial objectives.

For more information and to book an appointment with an SFS Adviser, call 0800 145 6661.

The Stocks & Shares ISA products offered through SFS are not like bank or building society accounts as they can rise and fall in value and your capital is at risk. The tax treatment of investments depends on your individual circumstances and may be subject to change in the future.

Skipton Financial Services Limited is authorised and regulated by the FSA under registration number 100013.

See the main Planning and Managing LaterLife Finance section for information on a wide variety of financial topics

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