ISAs,Are,They,Really,That,Tax, finance, share, loan ISAs - Are They Really That Tax Efficient?
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One of the standard pieces of advice we have always given when it comes to investing in stocks & shares is that it really will pay off to maximise the allowances clients have to ISAs.If a client is looking to invest, this is the first port of call for us as wealth managers. As a couple can invest £7,200 each in every tax year, this 'pot' can potentially grow very nicely over the longer term. This growth will then be sheltered from the ravages of taxation.Let's say a higher rate taxpayer (the vast majority of our clients) has £100,000 in her ISA investments. What would be the returns after tax over, say, 10 years, and what if this same investment had not been sheltered in an ISA?A 5% yield (growth) per annum in a UK fixed interest unit trust fund would return:Non ISA value - £134,392 ISA value - £162,890An equity growth fund and a 7.5% pa growth:Non ISA (Offshore Bond) - £159,940 ISA - £206,100Returns are very similar if a UK equity income fund was chosen.So, what about lower rate taxpayers? Well, the figures are not as dramatic, but once again the ISA wrapper proved to be the winner by quite a way.The conclusions are very clear. If you are an investor in the stock market, make sure that you maximise your ISA allowance each year if you can. If you have a spouse and funds allow, use their allowance as well.In practice, when we meet retired clients in their 60s and 70s, they tell us that having a tax efficient 'pot of money' that can be dipped into without any worries about tax is very reassuring. Retirement planning is not just about pensions.Of course there are a lot of worried investors at the moment with the world's markets showing considerable downturns. This is something we cover with clients on an ongoing basis, and what really strikes us is that because we only invest money in proper risk assessed portfolios that we have developed over the last 5 years, our average client's portfolio is holding up comparatively well.Recent annual reviews with clients have shown that a typical portfolio we recommend, would from January 2008 to date be down 15%. However, the FTSE All Share index is down 41%. This is something that you should cover with your adviser if it concerns you.So it does pay to maximise your ISA allowances. However, it is all very well having a tax efficient investment, but how is it coping with the current market downturn?If you are looking to switch from a unit trust or bond into an ISA, beware of any penalties to do so, including anytax to pay by changing.The Financial Tips Bottom LineIf you are an investor in the stock market, it really does pay to use the ISA annual allowances.Action PointCheck your overall portfolio. If you have any unit trusts or bonds, and have unused ISA allowances, it is worth finding out if these could be transferred into the tax shelter of an ISA.If you are investing new money, then start with your ISA allowances before looking elsewhere.
ISAs,Are,They,Really,That,Tax,