The Chancellor announced an unexpected bonus for investors in his April Budget, when he increased the annual individual Savings Account (ISA) allowance from £7,200 to £10,200. The allowance had remained frozen at £7,000 for many years until it was increased to £7,200 last year, and no-one expected such a large further uplift now.
For people under the age of 50 this extension will not become available until April 2010; but those over 50 will be able to subscribe the higher amount half way through this tax year on 6 October 2009. Unusually, those that will turn 50 on or before 5 April 2010 will be able to take advantage of the higher subscription on 6 October.
For clients who are over 50 we will be making arrangements to take advantage of the higher limit in October. This enhanced concession increases an already valuable tax break for investors, especially for those who are punctilious about taking advantage of it every year.
Over time it is possible to build up a very substantial portfolio which enjoys complete freedom from Capital Gains Tax and also, for higher rate tax payers, a substantial Income Tax reduction. Indeed for those that will have to pay the new 50% rate of Income Tax, the benefit of an ISA will be significantly greater. We would encourage all tax-payers that have not already done so to think of starting an ISA.
Given that we have seen a good deal of volatility in investment markets over the last 18 months or so there is now an ideal opportunity to review your investment choices and of course factor in the new investment limits.
Please do not forget that whilst ISA’s allowances can play a major part in your longer term investment planning there is the issue of using very favourable Capital Gains Tax Planning to ensure your longer term security from investments with an eye on Tax Efficiency. Noting of course that there is a favourable Capital Gains Tax Treatment on Death.
Therefore utilising both ISA allowances and building a separate Unit Trust or Share portfolio can make a lot of sense in any market.
With many modern ‘wrap’ type investments you can hold Unit/Investment Trusts within the wrap and simple make switches on an annual basis in order to utilise your annual allowances.
As always you should seek Independent and Impartial Advice before you make any investment decisions and of course you should never invest for Tax Reason alone.
