The ten biggest ISA myths
Article from The Times, published 25 March 2017. Written by Mark Atherton.
Article: "Experts say that a surprising number of people don’t invest their allowance because of confusion about the individual savings account (Isa) rules. We tackle the myths that can hold you back.
1 My money is locked in Lisa Caplan, the head of financial advice at Nutmeg, the online investment manager, says: “This is the most common misconception. While it’s true that some cash Isas offer slightly better rates if you leave money for more than a year, most cash Isas and almost all stocks and shares Isas permit withdrawals whenever you want.”
2 Isas are only for the wealthy Not true, says Ben Faulkner, the communications director at EQ Investors, the wealth manager. He says: “You can start an Isa from £1 a month.” Some cash Isa managers will ask for a minimum sum in return for a higher rate of interest, but for the majority of Isas this is not required.
3 They’re for experienced investors Most people have a savings account of some kind and a cash Isa is simply a savings account with the added benefit of tax-free interest. Stocks and shares Isas are more complicated and riskier, but it is easy to buy funds that share in stock market growth, while spreading the risk by investing in a portfolio of dozens, or sometimes hundreds, of individual stocks.
4 The tax-free savings allowance renders them pointless It is true that many people will find that any tax on their savings account interest would be more than taken care of by the tax-free savings allowance, which covers the first £1,000 of interest for basic-rate taxpayers and the first £500 for higher-rate taxpayers. However, there is no allowance for top-rate taxpayers and, as Mr Faulkner says, there is no guarantee that the allowance will not be cut or abolished.
5 There’s no point, interest rates are low You don’t know when an increase in the amount you put into savings accounts, or a rise in savings rates, could push you above the tax-free threshold if you hold your money in deposit accounts outside a cash Isa. Ms Caplan says you could put money into a stocks and shares Isa if you are seeking a better return.
6 You can have only one Isa You can open a cash Isa and a stocks and shares Isa each year. You can split your annual allowance between them in any way you want, provided you don’t exceed the overall maximum, which this year is £15,240, rising to £20,000 from April 6. You can continue to enjoy the income and capital growth from previous years’ Isas.
7 You can’t transfer Isas You can transfer money from a cash Isa to a stocks and shares Isa and vice versa, and you can also move your money to another Isa manager. Ms Caplan says: “Making a transfer is as easy as filling out an online form with your proposed new Isa manager.” When making a move, you should never withdraw the money from your existing Isa, but let the new manager carry out the transfer.
8 I am not a UK citizen, I’m not eligible This is not the case. Ms Kaplan says: “If you pay tax here, you can also enjoy the tax exemption.” However, US citizens face restrictions on stocks and shares Isas because of the stringent requirements of the US tax authorities.
9 Basic-rate taxpayers don’t benefit Mr Faulkner disagrees. He says: “Although basic-rate taxpayers have an annual tax-free allowance of £1,000 for savings interest and a £5,000 dividend income allowance (reducing to £2,000 from April 2018) there are still benefits to investing via an Isa.” For example you may have interest or dividend income that exceeds the relevant allowances and you can make unlimited capital gains within an Isa without paying any tax.
10 I will have to do a tax return Quite the opposite. Ms Caplan says that one of the joys of investing in an Isa is that you don’t have to declare it in your tax return. She says: “Isas can work for almost anybody. You don’t have to invest the full Isa allowance; save anything you can and then let compounding returns do the work.” "
The contents of this article was written by The Times in March 2017 and is intended for general information purposes only and shall not be deemed to be, or constitute financial advice. Any information or views should not be relied upon and are independent of Keith Montgomery Associates Ltd.