8:52am Friday 13th March 2009
THERE are not many opportunities nowadays to legally “get one over” on the tax man. However, ISA’s provide one. It’s now a question of whether you take that opportunity or not.
Introduced in 1999 by the Labour Government to replace old style Peps and Tessa savings, ISA’s allow you to save money in a tax-efficient manner each tax year, April 6 to April 5.
Before you get too carried away, there are limits to the amount you can invest in an ISA every year. These limits are currently £7200 for a stocks and shares ISA, £3600 for a cash ISA, and £7200 as an overall ISA contribution limit.
Although small to some people, ISA’s should form an invaluable part of your overall savings plans, irrespective of how much savings you have.
Say you decide to take advantage of the Government’s offer, what is it going to be? Cash or stocks and shares?
This is a personal decision and one that only you can make. It’s also a very important decision too, especially in the current climate as it simply comes down to your attitude to risk, or to you and I, the level of risk you are prepared to take.
In simple terms, a cash ISA is a bank account that pays its interest gross, and therefore no tax is deducted from your interest.
Cash ISAs are deemed to be very low risk, safe investments that offer relatively easy access. You pay for that safety though, and returns can only be expected in line with bank savings accounts rates. The best rate I could find this week was offering 3.5 per cent with instant access. Normal bank accounts would have 20 per cent of this rate deducted in tax.
A stocks and shares ISA, on the other hand, invests in many other areas, however, and not just in shares as the name suggests. This perception can often put people off investing in this category. The truth of the matter is that yes, they are higher risk than cash ISA’s, but the returns could be higher too. They also obviously could be lower and your investment could go down in value. However, there are some offering certain capital guarantees that in a worst case scenario return all of your money at maturity.
Whatever your attitude is to risk, there is an ISA out there to suit you. The art is choosing the right one. If you have savings and don’t have an ISA, you are simply giving money to the tax man that you don’t have to. If you have not utilised your allowance for this tax year either, you only have three weeks left to do so.
It’s important to know also that you cannot carry forward any unused allowances to the following tax year.
Most providers end up having a last minute rush to beat the deadline, and inevitably some people miss out. Therefore don’t delay, use it or lose it!
■ Karl Pemberton is director of Active Financial Services, of Guisborough, east Cleveland. He can be contacted on 01287632367 or through activefinancialservices. co. uk
© Copyright 2001-2012 Newsquest Media Group
http://www.thenorthernecho.co.uk/trade_directory/