Introduction
Happy Anniversary ISAs 1999 – 2024
1999 was the year we first saw the Euro, Scotland & Wales got their own devolved parliaments, Vladimir Putin became President of Russia, the population of the planet surpassed six billion and the world didn't end at midnight 2000 due to the 'Y2K - Millennium Bug'!
6 April 2024 marked 25 years since the launch of the ISA. For those of you old enough to remember, ISAs replaced PEPs (Personal Equity Plans) which had been around since 1987. Essentially, Gordon Brown just re-branded what was already a popular tax-free savings plan. He increased the maximum you could contribute per year from £6,000 to £7,000 and extended the rules to allow cash as an investment. The allowance climbed sporadically over the years until 2017 where it settled at £20,000 and has remained ever since.
ISAs are once again rising in popularity:
- Prolonged freezes to the higher rate tax threshold and personal allowance, reductions to both the dividend allowance and capital gains tax annual exempt amount, and a lower threshold for additional rate tax have all made the UK tax shelter offered by ISAs extremely attractive.
- Improved stock market conditions and higher yields from fixed-interest securities.
Despite the ISAs growing investor appeal, the government has, at best, demonstrated benign neglect. The annual 'use it or lose it' allowance cannot be brought forward, and the limit continues to languish at £20,000 despite recent rampant inflation.
The government's disinterest in ISAs is driven by tax; in 2022/23, ISA tax advantages (income and capital gains tax) are estimated to have cost £4.3 billion, and the figure will increase substantially for the current tax year because of those higher returns.
If you have existing ISAs, it is important that you review them regularly to maximise the tax benefits and ensure continued suitability of your holdings. If you have Cash ISAs, that review includes considering whether switching to a stocks and shares ISA would be appropriate. Even at today's higher interest rates (not always passed on to cash ISA savers), the long-term returns are well below stock market returns.
If you or a family member would like to discuss your options further, please feel free to get in touch.
We cover some of the other topical matters in our Spring newsletter, which we hope you will find useful. In the meantime, we hope that we can all look forward to some bright and sunny weather!
* This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action based on the contents of this publication. The Financial Conduct Authority does not regulate tax advice, so it is outside the investment protection rules of the Financial Services and Markets Act and the Financial Services Compensation Scheme. The newsletter represents our understanding of the law and HM Revenue & Customs practice as of May 2024.
Past performance is not a reliable indicator of future performance. The value of investments and the income from them can go down as well as up and you may get back less than you invested. The value of tax relief depends upon your individual circumstances. Tax laws may change. The Financial Conduct Authority does not regulate Accountancy Services, Legal Services, Taxation Advice, Business Consultancy Services, Estate Agency Services and some forms of private banking and debt consolidation.