Statistics from the Investment Association regularly show that ISA sales are clustered in the early months of the calendar year as investors react to the 5 April deadline.
This is also evident in the personal finance pages of the weekend press during March, when it is hard to avoid all the ISA stories. However, by mid-April ISAs seemingly go into hibernation. The puzzle is why that happens.
ISAs offer some important tax benefits and, logically, to maximise their use, investment should be made at the start of the tax year, rather than its end. As a reminder:
Recent statistics issued by HMRC revealed that in 2017/18, 72% of ISA subscriptions were made to cash ISAs. While the cash ISA does have a role, investors should give serious thought before using their ISA subscription to go solely down this route. These include:
Those low interest rates (CPI annual inflation was running at 1.9% in March 2019) have encouraged some investors to choose ‘innovative finance’ ISAs, which advertise higher returns. These are not cash ISAs and are outside the protection of the Financial Services Compensation Scheme. At the turn of the year, one of the providers of such ISAs, which had been promoting 8% returns, went into administration. Subsequently HMRC decided that what had been marketed did not even meet ISA requirements, leaving investors not only with a capital loss, but also a potential tax bill.
If you are planning to make an ISA investment in 2019/20, it may be wise to consider doing it now, rather than waiting for the rush at the end of March.
If you would like to discuss your ISA options, or to review your existing ISAs, please contact Finura. What made sense a few years ago as an ISA strategy may not do so now.
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