Snap up this year’s Isa tax break before it’s too late
THE DEADLINE for using this year’s Isa allowance is a little over three weeks away, so time is running out if you want to take advantage. If you do not use this year’s allowance before midnight on April 5, then you will have lost it for good.
The deadline is tighter than you might think, because Easter Monday falls on April 5 this year.
While some banks, building societies and investment platforms may accept applications right up until the last minute, others will not. If you apply by post, you will have to act well in advance.
Investing tax-efficiently through an Isa is even more important following Chancellor Rishi Sunak’s Budget.
Simon Crookall, founder of investment platform Investengine, said taxes will have to rise further to pay for pandemic support: “All the more reason for savers to make use of the Isa tax break, as all the returns are free of income tax and capital gains tax for life.
“You can invest up to £20,000 this year.while most cannot afford that, you should invest what you can.”
CASHING UP
Cash Isas are a safe home for your money but the interest rates are frankly appalling.
Nationwide and Paragon lead the pack paying 0.4 per cent, but their Triple Access Isas limit withdrawals to a maximum of three a year.
If you can lock your money away for a fixed term, Shawbrook Bank pays 0.75 per cent over three years and 1.10 per cent over five, but you must open it online.
Anna Bowes, founder of rate tracking service Savings Champion, said the drop in savings rates has been relentless.
“It is hard to believe we’re in the annual ‘Isa season’. Both savers and providers seem to have lost interest, in more ways than one,” she said.
If you are committed to cash, Isas do at least pay slightly more than standard savings accounts. Plus you are safeguarding your allowance for future years, when interest rates may be higher and more of your returns could become subject to income tax.
Today’s cash Isa savers hold on average £27,727, research from investment service AJ Bell shows, but almost half have never switched to get a higher interest rate.
Financial analyst Laith Khalaf said if you are committed to cash see if you can get a better return elsewhere.
TAKING STOCK
Over the longer run, money invested in a Stocks and Shares Isa should grow at a faster pace, outpacing inflation to increase the value of your money in real terms. If you had saved £10,000 in the average cash Isa 10 years ago it would be worth just £9,770 today in real terms, after inflation. Invested in global shares it would be worth in real terms £20,760, Khalaf said.
“Everybody needs a pot of cash for a rainy day, but long-term savings work harder in the stock market.”
The easiest way to invest in a
Stocks and Shares Isa is to sign up to an online investment platform such as
AJ Bell, Bestinvest, Charles Stanley, Chelsea Financial Services, Hargreaves Lansdown, Interactive Investor or Openmoney.
These let you choose from thousands of individual stocks and pooled investment funds, and save on charges as well.
They work best for those who are happy to make their own investment decisions. If you need guidance, seek independent financial advice.
STAY INVESTED
While stock markets could remain volatile, Michael Martin, private client manager at investment management firm 7IM, said you can reduce the risk by investing for the long term: “Markets don’t go up in a straight line, so be prepared for some bumps in the road.”
It pays to keep calm and stay invested through turbulent times, even when older. Martin said previous generations were told to reduce risk by switching from shares to bonds and cash as they reached retirement, but that no longer applies now that fewer people buy annuities.
Retirement could last more than 20 years, and you do not want to miss out on stock market growth in that time. Martin says: “That might undermine your long-term returns and your ability to cope with other risks, such as inflation or living much longer than expected.”
Do not just invest in the UK, but spread your money between global markets as well, Martin added.
THINK FUNDS
Fundsmith Equity Fund, managed by the highly successful Terry Smith, remains the UK’S most popular fund. It invests mostly in US shares and is up 125 per cent over five years.
Lindsell Train Global Equity, the Vanguard range of Lifestrategy funds and Fidelity Global Special Situations are also highly popular, according to online investment service Interactive Investor. But past performance is no guarantee of future success.
Adrian Lowcock, head of personal investing at financial investments firm Willis Owen, said those keen to invest in fast-growing China and Asia could consider the FSSA Asian Focus Fund or Fidelity Emerging Markets.
If you do not use this year’s allowance you will get another shot at it on April 6, when you get a fresh £20,000 Isa annual allowance.
‘Retirement could last more than 20 years, and you do not want to miss out on stock market growth’