MONEY MAT­TERS

We look at what the lat­est fig­ures re­veal about the ver­sa­tile tax wrap­per

Shares - - CONTENTS - Laura Suter, per­sonal fi­nance an­a­lyst, AJ Bell

Sur­vey­ing the ISA land­scape /

How SIPPs can help re­duce your IHT bill

Fewer peo­ple are us­ing ISA ac­counts, but those that do are stash­ing away more cash – that’s the con­clu­sion of the lat­est an­nual re­lease of fig­ures on ISA us­age from the Gov­ern­ment.

The fig­ures from the Gov­ern­ment show the to­tal num­ber of ISA ac­counts in the 2017-18 tax year, the amounts of money put into ISAs and the split between cash and in­vest­ment ISAs. They also give the first in­sight into the take-up of the new­est ISA – the Life­time ISA – with the first year of fig­ures un­veiled.

The fig­ures, re­leased last week, show that al­most 260,000 fewer ISA ac­counts were opened in the 2017-18 tax year – with the to­tal num­ber of ac­counts fall­ing to 10.8m. This marks the low­est num­ber of ac­counts in al­most two decades. How­ever, the big­gest hit was to cash ISA ac­counts, with an 8% drop in the num­ber of ac­counts, while the num­ber of stocks and shares ISAs rose in the year.

CASH ISAS OUT OF FASH­ION

The fall in cash ISAs comes as the in­ter­est rates of­fered on cash ac­counts re­main stub­bornly low – even de­spite the Bank of Eng­land rais­ing in­ter­est rates this month, from 0.5% to 0.75%. At the same time in­fla­tion, which is the mea­sure of the ris­ing price of goods, has been above the Gov­ern­ment’s 2% tar­get for some time. This means much of the money left in cash ISA ac­counts is see­ing its spend­ing power eroded – putting off savers.

The in­tro­duc­tion of the per­sonal sav­ings al­lowance has also dented the pop­u­lar­ity of ISAs – both cash and in­vest­ment ac­counts. Launched in 2016, this al­lowance gives an an­nual tax-free amount for any in­ter­est earned on sav­ings: £1,000 tax-free for ba­sic-rate tax­pay­ers or £500 for higher-rate tax­pay­ers (top-rate tax­pay­ers get no al­lowance). This tax break covers in­ter­est on bank and build­ing so­ci­ety ac­counts, most in­vest­ments, peer-topeer lend­ing and cor­po­rate and Gov­ern­ment bond in­ter­est.

This means that the ap­peal of ISAs, par­tic­u­larly for ba­s­i­crate tax­pay­ers, has re­duced. How­ever, for those in­di­vid­u­als who are likely to move into the next in­come tax bracket soon, or those fear­ful of Gov­ern­ment change to the per­sonal sav­ings al­lowance, it could be pru­dent to start stash­ing cash away within the ISA wrap­per.

WHAT’S HAP­PEN­ING WITH JU­NIOR ISAS

Ju­nior ISAs con­tinue to be largely in­vested in cash, which makes lit­tle sense for many savers as the money is locked up un­til the child reaches the age of 18 – mak­ing it the ideal long-term in­vest­ment in many cases.

A to­tal of 57% of Ju­nior

ISA money is in cash, a slight im­prove­ment on last year, when more than 60% of money was in cash. There has ac­tu­ally been a de­crease in the amount held

in cash Ju­nior ISA ac­counts, of £8m, while more than £50m was in­vested through Ju­nior ISAs.

Take-up of the ac­counts has risen for an­other year, with more than 900,000 chil­dren hav­ing an ac­count. How­ever, de­spite the max­i­mum amount you can put in a Ju­nior ISA each year be­ing £4,128, the aver­age sub­scrip­tion for 2017-18 is far be­low that, at £994. This is the low­est fig­ure recorded since the Ju­nior ISA was launched in 2011.

LIFE­TIME ISA

The first fig­ures have been re­leased for the Life­time ISA, giv­ing the ini­tial look at how pop­u­lar the mar­ket has been since the new­est ISA was launched in April 2017. A to­tal of 166,000 ac­counts have been opened and £517m saved – av­er­ag­ing £3,114 per ac­count.

The Life­time ISA can be used to save to buy your first prop­erty or to pro­vide a retirement fund, and you can put away £4,000 into the fund each year. It is avail­able in cash and in­vest­ment op­tions, and the Gov­ern­ment adds a 25% bonus to any­thing you pay in (up to that £4,000 limit).

HOW ARE OTHER PEO­PLE IN­VEST­ING THEIR ISA?

The Gov­ern­ment fig­ures also give an in­sight into how other peo­ple are in­vest­ing their ISA money, with a break­down in the types of in­vest­ments that peo­ple have picked.

In the past year there has been a dra­matic in­crease in the num­ber of in­vestors us­ing in­vest­ment trusts. The to­tal amount peo­ple have in­vested via in­vest­ment trusts has risen al­most 20%, from £14.5bn in 2017 to £17.3bn in 2018.

Along­side this there has also been a slight in­crease in the amount ISA in­vestors are putting into shares – of 4% over the year - and a 6% in­crease in the use of funds.

How­ever, in­vestors have be­come more cau­tious in the year, as the amount of money left in cash within stocks and shares ISA ac­counts has risen – by 17%, from £11.4bn to £13.3bn.

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