Shelter your assets in an ISA with F&C
Looking for a tax-free home for your savings?
With all the turmoil in the financial sector over the past couple of years, you could be forgiven for feeling like the safest place for your savings is under the mattress. Banks have failed, stockmarkets have plunged and the global recession has made people understandably nervous about what the future holds.
But the mattress option is not without risk. The rate of inflation has been creeping up, having spent much of 2009 in negative territory, the headline Consumer Price Index was 4.5% in May 2011.
As Ronald Reagan once commented, inflation is “as violent as a mugger … and as deadly as a hitman”. The way to beat inflation, of course, is to put your money in assets that will grow at a rate that outpaces inflation. But with the Bank of England base rate stuck stubbornly at 0.5%, cash is unlikely to fit the bill as a home for your long-term investments (though of course it can be ideal for a ‘rainy day’ fund, where ease of access is the paramount consideration).
Tax can chip away at the value of investments, too. Currently income from investments (including savings interest) is liable to income tax (charged at 20%, with a further 20% to pay for higher-rate taxpayers), with gains on the sale of investments subject to capital gains tax at 18% if they exceed the annual tax-free allowance (currently £10,600).
And regardless of who wins the forthcoming general election, taxes are likely to rise over the next few years as the Government struggles to bring borrowing back under control.
Shelter your assets in an ISA
One way to address all these issues is to make the most of your Individual Savings Account (ISA) allowance. With an ISA you can invest up to £10,680 a year with no income tax or capital gains tax to pay on the proceeds. Up to half this annual amount can be held in cash, and you can invest up to the maximum in ‘stocks and shares’ (a broad definition that includes investment funds holding a wide range of assets).
Save for your kids in an ISA
If you have children aged 7 or under, they will already be benefiting from tax-favoured savings in the form of their Child Trust Fund. You could get the same benefits for older children by using an ISA (with the added bonus that you don’t have to give them the money when they reach 18) - or you might want to be really radical and save something for yourself. Just bear in mind that if you choose market-based investments such as shares, their value can go down as well as up and you may not get back the full amount invested. Shares (and funds that invest in them) are meant to be held for the long term, so you should not tie up money that you might need back at short notice.
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Your ISA allowance: use it or lose it
Your ISA allowance for any one year, if not used, is gone forever, so the financial services industry tends to spend the time between Christmas and Easter encouraging investors to top up their holdings to make full use of the tax breaks on offer. Anyone aged 16 or over can save in an ISA, and couples each have their own allowance, so between you and your partner you could invest up to £21,360 in the current tax year. As previously noted, though, you should not tie up money you might need at short notice, either in stocks and shares or in the kind of ‘fixed term’ cash ISAs that often offer the most attractive rates of interest.
How F&C can help
Through its Investment Trust ISA, F&C Investments - the exclusive children’s savings partner of iChild - offers the same wide range of investment trusts available to its Child Trust Fund Investors. These cover a range of markets and risk appetites (although they all carry some risk to capital), with options including UK equities for growth or income, widely spread global portfolios and alternative assets such as commercial property and private equity.
To find out more, visit www.fandc.com/ISA2011 or call 0800 136 420. F&C Investments cannot give you financial advice, so if you are in any doubt as to whether an ISA is right for you, you should talk to a financial adviser.
