The opportunity to invest in a tax-efficient way has made ISAs the cornerstone of many investment strategies; investors are understandably enticed by the ability to achieve tax-free interest and no further tax on income or capital gains.
There are two types of ISA: cash ISAs are savings accounts where the interest is paid tax-free; and stocks and shares ISAs which, as the name suggests, allow investment into a wider range of stock market and other financial instruments.
But there is a sting in the tail, the average cash ISA deposit rate if just 0.67 per cent.
The tax benefits provided by ISAs are best maximised by investing for the long-term in assets capable of achieving capital growth and rising income.
Cash is certainly the right home for emergency funds. ISAs might be better utilised by investing in a diversified portfolio of assets.
Of course, investors need to bear in mind that the value of a stocks and shares ISA may fall as well as rise and it does not provide the security of capital associated with a cash ISA.
As well as considering the best use of this and future years’ ISA allowances, those who have already built up significant ISA funds might be able to improve the income and capital returns on offer.
All too often, people do not review their ISA portfolio strategy frequently enough.
How are the investment managers performing? Is the asset mix, geographic spread or fund choice still right for them?
Can they improve the income-generating potential of their ISA portfolio?
Are they happy with the service they’re receiving?
A thorough review of an ISA portfolio by an experienced wealth manager can ensure that is appropriately structured and diversified to help achieve immediate or future financial goals.
Remember that the favourable tax treatment given to ISAs is subject to changes in legislation and may not necessarily be maintained in the future.
To receive a complimentary guide covering wealth management, retirement planning or inheritance tax planning, contact Simon Hoadley Wealth Management on 431938.