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06 April 2020

ISA’s 21st Anniversary: Many Happy Returns

For millions of people in the UK, the Individual Savings Account (ISA) has changed the way their money is saved and invested; today marks the 21st anniversary of its introduction.

On 6th April 1999, in a year when the average house price was just over £67,000, nobody knew just how successful the ISA would become. When it was introduced, the total annual Stocks and Shares ISA allowance was £7,000, compared to the £20,000 allowance for the 2020/21 tax year.

The ISA remains a popular tax-efficient wrapper for investments. The market value of all ISAs currently stands at more than £600bn, with more than £69bn subscribed in the 2017/18 tax year alone.
 
WHY INVEST IN AN ISA?
 
Flexibility
 
You can withdraw cash, income or cash raised from the sale of investments and gain added flexibility and access to your money. However, you must replace a cash withdrawal in the same tax year if you wish to maximise the size of your ISA pot, as any monies not replaced before the end of the tax year cannot be carried over.
 
Better Rates of Return
 
In the current low-interest rate environment, an increasing number of people are considering Stocks and Shares ISAs. According to the Office for National Statistics, the number of cash ISAs fell by 697,000 and the number of investors subscribing to stocks and shares ISAs rose by 246,000 in 2017/18. The share of cash ISA subscriptions fell from 77% in 2016/17 to 72% in the same tax year.
With the uncertainty caused by the Covid-19 pandemic, investing in equities may seem risky. Stocks and Shares ISAs are intended as a long-term investment – at least five years is recommended to help you through periods of volatility - and investments may go up and down in value. However, they could well be worthy of consideration if you are comfortable with the higher risk involved.
 
Key to protecting portfolios from risk is to have a balanced and diverse portfolio, with holdings in a combination of equities and other asset classes such as fixed interest and property. Investment trusts can help investors gain access to a diverse set of holdings.
 
Tax-Free Dividends
 
From April 2018, the dividend allowance fell from £5,000 to £2,000. This means, for shares held outside an ISA, only the first £2,000 of dividend income is tax-free, with anything earned above this amount taxed at your usual rate. Dividend payments from investments held within an ISA, however, are tax-free. Furthermore, your ISA doesn’t need to be declared on your tax return.
 
Exempt from Capital Gains Tax
 
Capital Gains Tax (CGT) is payable when you make a profit from investments or other assets when you sell them. While capital gains you make from investments held in a Stocks & Shares ISA are tax-free, due to the annual capital gains allowance (£12,300 in the 2020/21 tax year), a Stocks & Shares ISA will only offer a Capital Gains Tax benefit if you realise gains in excess of this allowance in a single tax year.
 
Inheritance Planning
 
Some AIM shares qualify for Business Relief (BR), which means they are potentially exempt from Inheritance Tax (IHT) when they have been held for the required period. Please note that AIM shares tend to be higher risk than those traded on the main market as they are typically less liquid than their main market peers and share prices can be volatile. Due to the complexities involved, we offer a Discretionary IHT Portfolio Service with the aim of mitigating IHT without removing access to your assets.
 
Transfer of Benefits
 
Upon the death of an ISA holder, a surviving spouse or civil partner can benefit from a one-off additional ISA allowance equal to the value of the deceased’s ISA at the date of death. This is known as the Additional Permitted Subscription (APS), and the value of the APS is independent from any assets held within the ISA, meaning if under the will the assets are inherited by another member of the family, the surviving spouse or civil partner is still entitled to apply for the APS.
 
Please note that tax treatment depends on the specific circumstances of each individual and may be subject to change in the future.
 
Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
 
For more information on our ISA offering, please visit: www.redmayne.co.uk/isas or contact your local Redmayne Bentley office.

If you would prefer to have one of our trusted and experienced investment managers take care of your investments, then our discretionary investment management service maybe right for you. For information read more about our investment management services.
ISA’s 21st Anniversary: Many Happy Returns
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