MONEY MATTERS


in association with Making the most of ISAs


ISAs can offer savers protection from the tax collector,


but many of us do not take advantage. Dorothy Lepkowska explains


T


here is plenty of evidence to show that savers continue to hand over money to the taxman unnecessarily because they are not taking full advantage of the individual savings Account (isA) allowance. According to some estimates,


people living in the UK are wasting over £263 million in tax by not putting their savings and investments into a tax-efficient savings account. Of this amount, £165 million is being paid out in unnecessary tax by savers who do not make use of their cash isA allowance, and £98 million by shareholders who do not transfer their holdings into an equity isA. Furthermore, older savers were losing out more


than most and are paying out £200 million more tax on their savings than they needed to. This is partly because their tax affairs were more complicated, an inquiry by the house of Commons Public Accounts Committee found, and they had multiple sources of income and savings. As a result, they often ended up paying too much tax on their incomes. One way to tidy up your savings and keep the


interest on your savings for yourself is to consider opening an isA. They offer real benefits because you do not pay income or capital gains tax, as you would with ordinary bank or building society savings accounts. higher rate tax-payers, in particular, can find


themselves better off. if you earned £500 interest on a standard savings account, you would have to hand over 40 per cent of this interest – £200 – to hM revenue and Customs. however, had this money been placed in an isA savings account, you would have kept the full amount. On the other hand, if you have an income in excess of £150,000 and are affected by the additional rate tax then any interest will be taxed at 50 per cent. There are two types of isA – cash ones, and those


dealing in stocks and shares. Cash isAs are available to UK residents over the age of 16. Most cash isAs resemble and work like a bank or building society account but can also be bought through investments such as unit trusts, which invest in cash funds. stocks and shares isAs, meanwhile, are available to UK residents over the age of 18. They can be made up of one or more investment funds, or individual stocks and shares. The tax advantages of an isA mean you are only


allowed to hold one of each type in each tax year, and there is also a limit on the total amount you can invest. The limit for the current tax year is £10,200, though this will increase to £10,680 from April 6, 2011. This allowance can be placed in its entirety into a stocks and shares isA, or half of the annual allowance can be paid into a cashisA and the remainder to a stocks and shares one. The type of isA you should choose will depend


on a number of personal factors. You need to think about how long you want to save for, what your saving objectives are, and your attitude to taking risks with money. if you are looking for a short-term investment or you want easy access to your cash, then a cash isA is probably the best option for you. however, if you want to save for the longer-term,


for example, to build a nest egg for your pension or save for university fees or gifts for your children when they are older, then a share-based investment may prove a better bet. While there have been times in the past when


the stock market has run into difficulty, history has shown that equities have tended to out-perform cash investments over the long-term. it should be added, though, that past performance should not necessarily be taken as a guide to future prospects for performance. You may also have concerns about investing in


equities because of the volatile market conditions of the past few years or you may even have cashed in your investments and are wondering if now is a good time to re-invest. One way of limiting the impact of short-term peaks


and troughs that can have a negative effect on your investment is by saving on a regular basis. This gets you into the good habit of putting money aside every month or so and it means that you avoid having to try and second-guess the market to decide the best time to make a lump sum investment. however, if you feel


SecEd • March 3 2011


confident that the market is on an upward curve there are advantages to making a lump sum investment as your capital will have the potential for immediate growth. For many people, who feel that investing in the


stock market directly is too risky, then a stocks and shares isA which invests in professionally managed funds offers a middle ground as it invests in a variety of investments including stocks and shares from both the UK and overseas. Choosing the right isA can be difficult as there are


many companies offering isA products and it can be hard to know how to choose the right one for your needs. simon rake, national sales manager with Wesleyan


for Teachers, said: “Our With Profits isA, which is part of our stocks and shares isA offering, has proved to be one of the most popular products among the teachers we advise. i believe a lot of its popularity is the built-in flexibility that isAs have. “Teachers do tend to commit to saving for the long-


term, however being able to reduce and increase your isA premium within the allowable limits does provide the peace of mind, so that if your circumstances change you can adjust your savings amount. “We find that stock and shares isAs are always


an important consideration as part of our financial planning with teachers whether we are reviewing savings goals through to retirement planning. “it’s also worth remembering to review any


existing isAs you have in place. Often providers entice customers to open an isA with competitive interest rates but these usually expire after a year or so and you might not be getting the return on your money that you think. it’s easy to transfer isAs but many people don’t think about doing this and so lose out as their money is not generating the interest it should be.” One of the main things to consider before you


commit any money is the financial strength of a provider. This is defined as meaning that a company can meet its on-going guaranteed or promised commitments and it is usually measured by the amount of money a provider has left over after they have met all of their liabilities. Do not be guided necessarily by the perceived size of a financial company. This is no indication of financial strength and smaller mutuals can often fare much better than the insurance giants in this regard. With high inflation, VAT increases and interest rates


at an all-time low, it is now more important than ever that you shop around and make the most of your money by using your isA allowance. if you already have an isA it is important that


you do not assume your current isA arrangements are sufficient and you should review regularly your investments with your financial advisor to ensure they continue to meet your personal needs.


• Dorothy Lepkowska is a freelance education journalist. 13


Wesleyan With Profits ISA 2% off initial charge until 28 April 2011


2% off initial charge


Limited offer available for lump sum investments and transfers over £5,000 into the Wesleyan With Profits ISA before 28 April 2011.


To find out more about the Wesleyan With Profits ISA:


0800 316 7181 quoting reference 60527 www.wesleyan.co.uk/isaoffer


Wesleyan for Teachers is a trading name of Wesleyan Financial Services Ltd, which is authorised and regulated by the Financial Services Authority. Wesleyan Financial Services Ltd is wholly owned by Wesleyan Assurance Society. Registered No. 1651212. Head Office: Colmore Circus, Birmingham, B4 6AR. Fax: 0121 200 2971. Website: www.wesleyanforteachers.co.uk. Telephone calls may be recorded for monitoring and training purposes.


WFT-AD-59-03/11


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16