As we get towards the end of the 2018/19 tax year, most IFAs start prompting their clients about topping up their ISAs, (Individual Savings Account), to the full amount available. ISAs are probably one of the most useful tax concessions available and one of the very few where there is cross-party support to keep them in place, potentially indefinitely.
The current annual allowance is £20,000 and is only available on a use it or lose it basis; use it within the tax year or it will be lost forever. As an ISA shields you from income and capital gains tax, this is a valuable concession, so it is understandable that there are limits to the amount you can protect.
Once you have taken the decisions to use an ISA, you now need to consider what type of ISA and after cash, what investments to buy. The Money Advice Service has a decent primer on what ISAs are available and how to select a suitable one if you do not want to have formal independent financial advice, so I will not cover it here, but there are areas where formal advice is very useful.
Using an Independent Financial Adviser for ISAs
If you have a clear understanding of investments and the way your new investment will interact with your existing provisions, then using an IFA to add to an ISA balance may seem like overkill, but there are several situations where paying for advice will make a massive difference in the future. Here at Martin-Redman Partners, formal advice for an ISA for an existing client is likely to cost no more than £140 for execution, so I would suggest that making it “our” problem will probably cost you less in time and hassle.
Starting from scratch
If you have made no investments to date, using an adviser would be wise move as there are a number of issues to consider from the outset. Using an investment platform can be both cheap and convenient, but which one? How do you choose which assets to buy and how to change them over time? How do you keep the fees and charges in check? How do you balance the risk taken and the return made? At the very least, formal advice will keep you aware of the bear traps that do exist. Sometimes we will tell you to put your emergency funds into a specific cash ISA, as there is no mechanism for a third party to set one up for you.
Building a wider portfolio
If you have pensions and ISAs scattered around the market, there is much to be said to a consolidation onto one investment platform and a unified approach to investment and the management of risk. If you are planning especially early retirement, (before 55 years old and access to pension schemes), then a mix of assets for retirement income is essential. Often platform charges are calculated on the aggregate of family assets held on the platform, so significant discounts can be obtained if pensions. ISAs, bonds and the general investment account are all on the same platform. ISA transfers into a platform will preserve the ISA status of investments you made in prior years. A regular sweep from the general investment account to an ISA to take up any remaining ISA allowance is easily arranged.
Investing for children and grandchildren
Getting a Junior ISA for a new child or grandchild is great investment planning and can help build up a lump sum for the child at 18 for them to use for university costs, their first car or some other purpose. As the timescale of investment is often long (i.e.15 years+), inflation is a key danger if investing in cash, therefore investment into equities should be strongly considered. Compound interest makes this a very effective way of growing capital but being over cautious with the asset the Junior ISA invests in can be a problem. But beware, once the child turns 18 the Junior ISA converts into an adult ISA and the child can choose to spend the funds as they wish.
Special purpose investments
ISAs can be very humdrum, but sometimes they can be used to manage some aspects of Inheritance tax, where ISAs are created using AIM, (Alternative Investment Market), assets to allow a claim for Business Property Relief. Formal advice is vital in unusual circumstances; unless the scheme works as intended, any costs incurred will be wasted.
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The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.