Although many investors’ minds will have been elsewhere in recent weeks, the deadline for using up their 2019/20 ISA subscription limit is now just days away. Peter Green, chief executive of Healthy Investment, one of the UK’s oldest financial mutuals, has the following six tips for investors as 5 April looms.
1. Maximise this year’s allowance. Adults can each pay up to £20,000 into ISAs in the current tax year (2019/20), and the same amount in the year beginning 6 April 2020. Mr Green says, “The tax advantages and flexibility of ISAs mean they should be the first port of call for anybody who is serious about saving or investing. The annual limit is a use it or lose it allowance so if you don’t make the most of it now you can’t carry it over to the next tax year.”
2. Remember couples each have their own allowance. The £20,000 annual ISA subscription limit is an individual allowance which means couples can, between them, put away up to £40,000 per year. Spouses and civil partners can transfer assets between them tax-free so, even if one party has no income, a high-earning spouse or civil partner can transfer the necessary funds to them to enable them to maximise their ISA savings.
3. Don’t forget your Capital Gains Tax (CGT) allowance. Individuals each have an annual allowance for capital gains that can be realised in any tax year (£12,000 per person in 2019/20) tax-free. People who have investments in less tax-efficient vehicles should consider “bed and ISA” transactions that see these assets sold up to the value of any remaining CGT and ISA subscription allowances and then immediately rebought within an ISA.
4. Remember you can move between cash and stocks and shares. Since 2014 it has been possible to invest up to the full ISA subscription limit in either cash or stocks and shares ISAs. It is also possible to hold as much cash as you like in a stocks and shares ISA. Mr Green said, “Many people may not feel ready to call the bottom of the market and go all-in with a stocks and shares ISA yet. They can, though, maximise this year’s allowance within a cash ISA if they wish and then move that cash into stocks and shares if and when they feel more comfortable doing so.”
5. Think about the children. Parents or guardians of under-18s can open Junior ISAs (JISAs) for children, into which money can then be paid by anyone up to an annual limit. The current limit per child is £4,368 but this is scheduled to increase to £9,000 per child per year from 6 April. Mr Green said, “The Chancellor’s decision to more than double the subscription limit for JISAs is a game changer. Now it is possible for parents, grandparents and other well-wishers with spare money to help provide life-changing lump sums for young people.”
6. Consider with-profits. With-profits funds, like those managed by Healthy Investment, can be held within stocks and shares ISAs. These funds “smooth” investment returns by holding back a proportion of gains during years of strong market performance and using them to mitigate the effect of falling markets in weaker years. Some with-profits funds also offer capital guarantees, providing investors with additional security. According to Mr Green, “Interest rates are at historic lows and stock market turbulence is likely to continue for the foreseeable future. I believe cautiously managed with-profits funds could provide a happy medium for investors who want the possibility of inflation-beating returns without exposure to the most extreme effects of volatile markets.”
Important note: The tips above are opinions and not advice. Readers should always seek qualified, expert financial advice before making significant investment decisions. The value of investments can fall as well as rise and investors may not get back the full value of their original investment.