Money Talk:Use Your ISA Allowance

It is a tough time for savers with low interest rates and the rising cost of living. It is even tougher deciding what is best for your hard earned cash.

The end of the tax year draws closer and financial institutions are telling people to “use your ISA allowance before it’s too late” however the claims made about ISAs and other investments should be taken with a pinch of salt ~ a deal offered by one provider might well be a good choice for someone but it is not going to be the most suitable for all.

Your first priority should be clearing debt and ensuring that you have some money set aside for a rainy day or short-term expenditure in which case an instant access account would probably be the best option.

If you have more cash to save you need to be aware that the current low interest rates on savings will not keep up with the persistence of stubbornly high inflation (best Cash ISAs rates are little more than 3% at the time of writing), the consequence being that cash will devalue. For example £1000 today would be worth around £822 in 5 years if inflation remained at the current rate of 4%, therefore savings need to yield over 4 per cent in order to achieve a real positive return. Some fixed-rate ISAs can offer savers better rates but cash will need to be locked-up e.g. 4 or 5 years.

If you pay income tax, the return on your savings will be reduced further. If you save or invest money, you’ll generally have to pay tax on any interest or income you get, an ISA is simply an allowable amount that you can save and invest with the benefit of a more efficient, or even tax-free, return.

Certain stock market investments currently offer inflation-beating yields or even inflation-linked income streams ~ the suitability to your circumstances and attitude to risk must be considered it is recommended that you discuss with an advisor . Existing investments can also be used to secure your ISA allowance without having to subscribe new funds – this is called a ‘Bed & ISA’.

If investments are held within an ISA income received does not need to be declared on your tax return. Dividends from equities (shares) are paid net of basic rate tax (no further tax liability for higher rate taxpayers), whilst interest on Gilts, Bonds, PIBs and some ETFs (Exchange Traded Funds) and ETCs (Exchanged Traded Commodities) is paid gross.

Additionally no Capital Gains Tax (CGT) is payable within an ISA. Many think that CGT will never be an issue for them, but over time modest investments can grow in value and if you need to raise capital quickly and dispose of assets (shares, property, business assets and personal possessions) you could face paying a hefty bill. Protecting your investments by placing them in an ISA could save you thousands of pounds.

To find out more about stocks and Shares ISAs CLICK HERE.

If you are unsure about managing your investments, Redmayne-Bentley in Beverley can offer a bespoke investment management service tailored to suit your objectives. If you are confident you can simply buy and sell through our dealing room.

For further details call 01482 864090 or drop into our office on Ladygate.

The price of investments and the income paid on them can fall as well as rise. All investments involve risk and you may not get back the full amount of your investment; it may fail altogether.