MarketViews | 10 TOP ISA TIPS FOR 2015

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10 top ISA tips for 2015

Financial Conduct Authority

By Faith Glasgow

ISAs individual savings accounts are a kind of

wrapper that shields your money from the taxman,
so it grows free of income or capital gains tax. You
can put up to 15,000 a year (rising to 15,240 in
April) into a cash ISA (a tax-free savings account)
or a stock-market ISA that holds investment funds,
trusts or shares.
1 CASH ISAS: SHOULD
YOU BOTHER?
You can put up to 15,000 this tax
year into a cash ISA - but be aware
that they currently pay barely more
First port of call for anyone (after than inflation, so dont expect to
clearing debts, usually) should be get rich this way.
cash holdings to cover short- or
medium-term requirements and

Over the years that tax protection can make a huge

unforeseen emergencies.

Cash ISAs work in this context, and

2 DIVERSIFY YOUR
INTERESTS

difference to its value, particularly if youre a are also useful if you are unable A 15,000 ISA holding individual
higher rate (40%) taxpayer and are investing in the to commit your money for the shares in a few companies is a
stock market. minimum five years or so needed pretty risky proposition, because if
for market investments, or if you one business hits the skids, it will
For example, if you had built up 100,000 of cannot stomach any thought of impact on your portfolio in a big
investments in a stocks and shares ISA growing at losing money. way. For most smaller investors,
7% a year (which included 3% income), as a higher
rate taxpayer you could be saving over 10,000 of
tax compared with an unwrapped investment.
First port of call for anyone (after
clearing debts, usually) should be
Its not difficult to set up either kind of ISA but are
you really making the most of your tax-sheltered cash holdings to cover short- or
money? To be sure youre getting the maximum medium-term requirements and
benefit, read our 10 ISA tips.
unforeseen emergencies.

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collective investments funds and
investment trusts are a much
safer bet, as they provide instant
diversification.
Diversify further by spreading
your investment across different
geographical regions, and different
assets such as bonds and property
as well as shares. You may be
able to do this through a single
multi-asset fund; or put several
funds together; or use one of the
ready-made portfolios typically
comprising five to seven funds,
available from many brokers.
Look, for example, at the Money
Observer Model Portfolios available
on Interactive Investors website:
http://www.iii.co.uk/investing/
model-portfolios.
3 CHOOSE YOUR
CHARGES CAREFULLY
Over the long term, its astonishing
how much high charges can
eat into your total returns. For
example a 10,000 investment
growing at 6% for 30 years would
be worth almost 53,000 in a
Look at fund
charges and be
sure that if youre
paying the extra
for actively
managed funds,
your managers
are adding
real value by
consistently
delivering better
returns than
a comparable
market index.
MarketViews | 10 TOP ISA TIPS FOR 2015
fund with a 0.3% annual charge,
but only 41,000 in an identical
fund charging 1.2%, according to
passive fund provider Vanguard.
Passive funds, which hold all the
shares in a stock market index (the
FTSE 100 for instance) and simply
follow it up and down, cost less than
actively managed funds that involve
a fund manager using research and
expertise to select shares.
So look at fund charges and be
sure that if youre paying the extra
for actively managed funds, your
managers are adding real value
by consistently delivering better
returns than a comparable market
index.
you reduce the impact of market waiting until the last-minute rush,
Look carefully also at the fees ups and downs, because your you can make a big difference to
levied by the broker (or platform money buys more units when the final gains. Thats partly because
in industry speak) that youre markets cheap and fewer when of the extra time your money is
investing through. Some charge
a flat fee that may be pricey if you
only have a small holding, while
its expensive, which can mean you
end up with more shares for the
same amount of money invested.
invested, and partly because the
end of tax-year scramble tends to
push prices up.
others work on a percentage basis
that can become much more Fidelity did some research which
expensive as your investment
grows. And you also need to
consider the cost of actually buying
5 MIX AND MATCH WITH
YOUR PENSION
found that 10,000 invested in
January 2000 would have grown
to over 35,000 after 15 years;
and selling, so its not simple. For most people the best the same sum invested just three
approach to long-term investing months later was worth only
The Lang Cats chatty guide to
finding the right platform is a useful
is to use a combination of
pensions and ISAs, and in fact
25,000.
read: http://langcatfinancial.co.uk/ they complement each other very
flipbooksd2c/index.html. nicely, says Patrick Connolly of
Chase de Vere. 7 REVIEW AND
REBALANCE
4 CONSIDER REGULAR
SAVING
Both offer tax-free growth while
your money is invested but
To ensure that you dont end up
taking too much risk, or too little,
pensions provide the best tax you should look to rebalance
Theres much to be said for a relief, with a generous upfront tax regularly. This involves selling some
regular monthly savings scheme boost to the value of your initial of those investments that have
for your ISA. Not only is it more
manageable if you dont have a
investment, while withdrawals
from ISAs are completely tax-free
performed well and now dominate
your portfolio, and reinvesting
meaty lump sum to hand, but its a and you can access your money the cash into those that have
less risky option. whenever you want. performed poorly and shrunk in
proportion. Otherwise, over time
By drip-feeding money in each you might find you have a portfolio
month, you do away with the
difficult task of trying to time 6 DONT WAIT UNTIL
YEAR END
with an uncomfortably large
chunk of, say, emerging markets or
your investment, so you dont run biotech funds that could easily lose
the risk of investing a large chunk Simply by investing earlier in the value as dramatically as theyve
just before a market fall. Instead, tax year each year, rather than gained it.
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MarketViews | 10 TOP ISA TIPS FOR 2015

Connolly advises: The best

approach for investors is to review
and rebalance their portfolio on a
regular basis, say every six months,
or once a year in January. If you do
it any more often then the charges
involved in making changes could
outweigh any benefits.
and income will be free of tax, he
says. The sale creates a capital
gain, but the profit is lower than
the CGT exemption so there is no
tax to pay. In April 2015, taking
advantage of both tax years of
ISA allowance, a couple could
shelter 60,480 of existing shares
or funds into their ISAs (15,000 x
2 for 2014/15 plus 15,240 x 2 for
10 EARNING 100,000
PLUS? PROTECT
YOUR PERSONAL
ALLOWANCE
Not only do you pay no income
tax on income from your ISA,
but in addition that income does
not count towards the personal
allowance means test. Under this

8 SHELTER EXISTING
INVESTMENTS FROM
FUTURE TAX
Investors used to be able to bed
and breakfast an investment
by selling it and then buying it
back the following day to rebase
its value and avoid building up
capital gains tax. Thats no longer
allowed, but you can bed and ISA
existing holdings, as Danny Cox of
Hargreaves Lansdown explains.
Bed and ISA is where a fund or
shares are sold to the value of
11,000 the capital gains tax
exemption then re-purchased
within an ISA, so that future growth
2015/16), providing their gains did
not exceed their combined CGT
allowance limit.
9 USE A JUNIOR ISA TO
AVOID THE PARENTAL
SETTLEMENT RULE
If you give money to your children
and invest it on their behalf, you
will pay tax on any investment
income over the first 100 a
year. However, if you set up or
contribute to a Junior ISA (or use
an existing Child Trust Fund), you
can invest up to 4,000 this tax year
(4,080 from April 2015) for them
with no tax issues.
test, those with taxable income
of 100,000 or more have their
personal allowance of 10,000
reduced by 1 for every 2 of
income they earn over 100,000; the
personal allowance has completely
dIsappeared by the time their
income reaches 120,000.
This is an effective tax rate of
60%, says Cox. Thats because an
extra 12,000 of tax is payable
on the additional 20,000 of
income. However, he adds: ISA
income does not count towards
this test, so you can use your ISA
investments to boost your total
income without jeopardising your
personal allowance.
Contributor
FAITH GLASGOW
spent 15 years as a freelance
journalist, writing on personal
finance for the Financial
Times Weekend Money pages,
Investors Chronicle and Money
Observer among other titles,
and winning a number of
awards over that time. She also
covered residential property.
She is currently managing
editor of Money Observer
magazine.

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