MoneyTalk (March 2004)

by Arch Financial Planning Limited

IT'S NOT TOO LATE TO USE YOUR ISA ALLOWANCE

With no mention of ISAs in the recent Budget it is now clear that the maximum ISA limit will reduce to £5,000 in the 2006/07 tax year. There are just two more opportunities after 6 April to invest the maximum of £7,000 into an ISA. If you have not invested in any kind of ISA in the current tax year (ie since 6th April 2003) you can still invest up to £7,000 in a Maxi Stocks and Shares ISA by 5 April 2004.

Are ISAs Losing Some of Their Tax Benefits?

With effect from 6 April investors will no longer receive a 10% tax credit on equity funds held in ISAs and PEPs. This applies to both new and existing investments. The tax credit has given a 10% advantage to both tax paying and non tax paying investors compared to investing in the same ‘unwrapped’ fund. Although higher rate tax payers holding equity funds in ISAs and PEPs will also lose the 10% tax credit, they will have no further tax to pay so they still have the advantage of not suffering a further 20% tax charge on the dividends as they would in an unwrapped fund.

Fixed interest investments, such as gilts and bond (ie fixed interest) funds, pay interest rather than dividends. Under current legislation the manager of an ISA or PEP is allowed to make a 20% tax reclaim on such interest. This is then passed on to the ISA or PEP holder. There are no proposals to change this situation.

Back To List

Are ISAs Still Useful?

Investors seeking income will still find ISAs useful if they are using tax efficient corporate bond or distribution (ie minimum of 60% bonds and the balance in equities) funds. Other investors should not overlook the fact that ISAs are particularly useful for protecting long term capital growth against capital gains tax.

Investors who have not yet retired should be building up the assets that they hold in ISAs as another form of retirement planning. Once they are retired, investors can switch the funds within their ISAs to bond or distribution funds to produce a good level of untaxed income. Retired investors also gain from the fact that income from ISAs does not count towards the limit before Age Allowance is reduced, thus possibly saving 33% in tax.

Back To List

What Type of Funds Can I Use?

Most Maxi ISAs use collective investment schemes such as unit trusts as the underlying investment but these do not have to be invested into equities (ie stocks and shares). You can invest into bonds (ie fixed interest investments), or property (ie a portfolio of commercial properties), or even commodities such as a portfolio of precious metals. If you are unsure you can also request that your ISA hold your money temporarily on deposit, thereby using this year’s ISA allowance, and then switch to your long term fund choice later.

Holding ISAs, PEPs and unwrapped unit trusts in a fund supermarket such as Cofunds is the most efficient way of reorganising an investment portfolio to take account of these changes.

Back To List

How Do I Invest?

If you are happy to make you own fund choice, then you could simply go to our website at www.arch-fp.co.uk/cofunds.htm where you will find a choice of around 700 funds and everything you need to complete your ISA application online. You will need a debit card to make your payment.

We carry out ongoing research into all of the funds available within Cofunds. As a result of this we produce a list of around 100 funds that we particularly recommend. You will find details of these on our website at www.arch-fp.co.uk/our_preferred_funds.htm.

Although you should not choose a fund just because it has a discount, it is worth looking at the current special offers on ISA funds once you have identified your choice. These can be found on our website at www.arch-fp.co.uk/special_offers_-_isas,_unit_trusts.htm. If you use the online Cofunds application form you will benefit from any of the offers that you see listed on our website.

If you prefer to receive personal advice then please make contact with your Arch adviser if you have their details to hand, otherwise email direct@arch-fp.co.uk or telephone 01483 204600, but hurry, your ISA allowance will be gone for ever on 6 April.

Back To List

Risk Warning

An investment into an ISA, PEP, unit trust, OEIC or other collective investment scheme is intended as a long-term investment. It is important that you are aware that the value of units in a unit-linked investment such as an ISA, PEP, unit trust, OEIC or other collective investment scheme, as well as any income which they generate, can fall as well as rise. If you surrender the contract, especially during the early years, you may get back less than you have invested. Where past performance is mentioned please note that the past is not necessarily a guide to future performance.

Back To List

Unsubscribe: Click here if you no longer wish to receive issues of MoneyTalk from Arch Financial Planning Limited

Subscribe: If you have a colleague who would like to receive MoneyTalk please ask them to email us at subscribe@arch-fp.co.uk

Feedback: We hope you continue to benefit from this Arch service. Do please let us have your comments or feedback at anytime

Arch Financial Planning Limited

Head Office & Registered Office: Caswall House, 6 Wharf Street, Godalming, Surrey GU7 1NN
Tel: 01483 527278, Fax: 01483 527279

Administration Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey GU6 8AS
Tel: 01483 204600, Fax: 01483 204611

AUTHORISED AND REGULATED BY THE FINANCIAL SERVICES AUTHORITY

DISCLAIMER
This message is confidential and for use by the addressee only. If you are not the intended recipient, you must not use, disclose, distribute, copy, print or rely on this message. Please notify the sender by return email and then delete the message from your computer. Arch Financial Planning Limited disclaims all liability of whatever kind (including for negligence) to anyone other than the intended recipient(s). Arch Financial Planning Limited accepts no responsibility for changes made to this message after it was sent nor for any loss or damage from receipt or use. We have endeavoured to ensure that this email is virus free but we advise that in keeping with good computing practice, the recipient should make his or her own checks.