News/Events

Tax-free Allowances [27th March 08]

I am always surprised by the number of clients I meet to review their financial affairs who have not taken full advantage of their tax free allowances and in particular the maximum into a Cash ISA.

Statistically, a saver could have amassed up to £27,000 in Cash ISAs since their introduction in 1999 or £36,000 if the old TESSA is included and this could mean £72,000 for a couple – a more than useful capital sum to generate income.

From the 6^th April, the limit not only goes up to £3,600 but the distinction between Mini and Maxi ISAs disappears plus PEPs will be amalgamated into the ISA framework. On top of this, it will be possible to transfer the cash element of a Cash ISA to a Stocks and Shares ISA but not vice versa, so confusion will undoubtedly reign.

Choosing a Cash ISA would seem quite a straight forward transaction and many savers simply stick with their own Bank or Building Society for ease of convenience and do not trawl the market to see what else is available. For information purposes, there are two sites I use which are www.moneyfacts.co.uk and www.find.co.uk.

 How many of you keep a balance in excess of £2000 throughout the year in your current account at .1% interest? Put that across into an ISA and make possibly £120 as some accounts currently offer over 6%. Then, you have the avid saver who has amassed over £20,000 in their Cash ISA when a 1% differential each year makes a big difference over, say, 5 years.

Now we get down to the nitty gritty as there is a myriad of plans available with so many different options such as instant access, fixed for a year or some period of notice. I also have to say that providers do have a large number of tricks up their sleeves in order to try and woo savers e.g. a 1% bonus for a year only. For example, both Barclays Bank and Alliance and Leicester are offering competitive fixed rates but with a bonus of 1% for a given period and then the account will no doubt have to be changed on maturity unless improved terms are then provided.

I always feel it is best to be invested with a provider who offers a competitive rate and has done so for many years. If you chop and change providers interest will be inevitably lost and you will get frustrated with any time delays.

There are a plethora of accounts available over the internet but not all savers have a computer or are still wary of moving their money around in this way. So, contact your IFA who should be tuned into the good performing accounts.

Many clients are currently concerned at investing into an Equity ISA due to difficult investment markets and may lose their £4,000 allowance that they would normally be happy to invest. Most providers have a cash reserve account where you can park your money temporarily pending investment so that you don’t have to make an instant decision.

Actually, I have always found my clients have liked to split their annual allowance between a Cash and Equity ISA which I feel strikes a good balance from a risk point of view.

 Don’t forget there is only three weeks to the end of the tax year to top-up to your maximum or open an account if you have not done so already.

This article was written by Langtons - Published in the Western Morning News, Money, 27th March 2008