Your Individual Savings Account (ISA) allowances expire on 5th April and with a lower dividend allowance from 18/19, should you be looking at a stocks and shares ISA?
Traditionally, for reasons we have never understood, ISA contributions have always been focused on the end of the tax year. We have always believed that, where possible, our clients should invest at the beginning of the tax year, to take full advantage of the period of the tax shelter.
About this time of year you will see the personal finance pages start to fill with stories about ISAs, often including tales of ISA millionaires. For all the coverage, these remain a rare breed. The largest ISA that we manage at PFS is a few pounds under half a million as we write this but , whatever the size of the pot involved , it serves as a reminder that regular saving over a long term can create significant amounts of capital.
Recent years have seen total ISA contributions falling, primarily due to a sharp drop in the popularity of cash ISAs which have seen contributions fallen by over a third between 2014/15 and 2016/17 and for two very good reasons:
- Ultra-low interest rates and limited competition between banks have made prospective returns look wretched, especially as inflation has picked up recently; and
- The introduction of the Personal Savings Allowance in 2016/17 meant that many depositors simply no longer need the wrapper of an ISA to escape tax on their deposit interest.
Meantime, Stocks and shares ISA contributions have reached a new high, undoubtedly helped by many ISA investors abandoning the cash version and there are a few of points to remember this tax year when making your stocks and shares ISA investment:
- The contribution limit (in total to all ISAs) is now £20,000, up from £15,240 in 2016/17. It will be held at £20,000 in 2018/19.
- Dividends within an ISA are free of UK tax. With the dividend allowance falling from £5,000 in 2017/18 to £2,000 in 2018/19, you may find you have to pay tax on shares held outside of an ISA.
- It is important to get your money into an ISA shelter. Remember that whilst your annual limit can’t be carried forward to the next year, you do not have to invest it all in funds by 5 April – once you hold cash in your ISA you can drip feed or ‘phase’ your investment into funds, if you wish.
For more information and advice on ISA allowances and selecting ISA providers, please contact us ahead of the April deadline.
Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances.
