What to know about ISAs
The Spring budget on 6 March was a bit of a non-event for many clients.
There was an important cut in Class 1 national insurance contributions from 10 to 8 per cent for those who are employees. High earners with children were given a boost, thanks to changes that were introduced to the high income child benefit charge. Tax incentives for holiday let landlords were removed. And there was a brand new tax on vaping.
Some clients will be directly affected by the announcements contained in Jeremy Hunt’s budget; however they weren’t exactly seismic.
The most interesting thing from our point of view was the announcement of a consultation to launch a “British ISA”.
The proposal would give investors a separate £5,000 allowance on top of the current £20,000 ISA allowance to invest in UK shares only, taking the annual threshold up to £25,000.
The proposal would offer an additional opportunity for savers to grow their money tax-free by investing in UK-based assets. With a British ISA investors would, as with other ISAs, not pay any additional tax on capital gains or income.
We don’t know yet for sure whether the British ISA will go ahead. The treasury has said it’s in the early stages of planning and with a general election on the horizon - as well as a consultation to go through - there are no guarantees. The consultation period is open now and runs until 6 June 2024, meaning that even if the British ISA does go ahead it is unlikely to be arriving imminently.
But even without the additional £5,000 allowance, a £20,000 ISA remains an excellent option when it comes to investing your money. A stocks & shares or investment ISA allows you to invest in funds, investments, shares, stocks and bonds; whereas cash ISAs are similar to putting money into a savings account, and are typically a better option for keeping money you might need in the near future. Changes to the ISA rules which come in this April allow savers to put their allowance into multiple ISAs of the same type and partially transfer ISA funds between different providers.
In general, people in the UK aren’t using ISAs enough. By not having an ISA and utilising the tax-free allowance available, millions are missing out on the opportunity to put away up to £20,000 each year in tax-free savings. If you use your maximum allowance each year, you can potentially build up a large sum of money in a tax-free place.
It’s certainly true that the £20,000 ISA allowance, which was set in 2017-18, has lost some of its value in recent years. But over the same period it’s also become more important to keep as much of your savings as possible in a tax-free wrapper. The capital gains tax (CGT) exempt amount was reduced from £12,300 to £6,000 from 6 April 2023 and has been reduced again to £3,000 from 6 April 2024. The dividend tax allowance has also gone down this April, from £1,000 to £500. Meanwhile frozen income tax thresholds are set to remain frozen until 2027-28, dragging more and more people into higher rate bands.
In other words, if you don’t plan properly there’s a very good chance you’ll end up paying more tax. ISAs are one option to help you avoid that.
2024 marks the fortieth anniversary of the FTSE 100. Established on 3 January 1984, the FTSE 100 soon became the de facto metric of the health of the UK stock market.
Investments rise and fall, and you may think that the last few years have been a pretty poor investment climate (and in that you’d be right). But when you take a step back and look at the performance of the FTSE 100 over the 40-year period since its founding, you get a rather different picture: things start to look less like peaks and troughs and more like rolling hills.
Source: FTSE Russell, 03/01/1984-31/12/2023. Past performance is not a guide to future returns.
Want to know more about your investment options?
Feel free to speak to one of our specialist advisors if you would like to talk through your investment options or would like more information about putting your money into an ISA.