Monthly archive for March, 2015
With just a week to go until the deadline for using your 2014/15 Investment ISA allowance (£15,000), this is your last opportunity to protect your returns from the taxman. If you are yet to make use of this valuable tax break, we let you know where investors are putting their money by bringing you our Top 5 most popular Investment ISA plans.
Conditional capital protection
These plans offer some protection of capital against a falling market since they all include conditional capital protection. This means that your initial capital is returned at the end of the investment term, as long as the FTSE has not fallen by more than a specific percentage, normally 50% of its value at the start of the investment.
Your capital will be at risk if the Index does fall below the defined level, in which case your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
5.28% fixed income each year, monthly payments
Top of the list is the Enhanced Income Plan from Investec which pays a fixed income of 5.28% per year (paid as 0.44% each month) regardless of what happens to the FTSE. Your capital is returned at the end of the plan unless the FTSE 100 Index falls by more than 50%, therefore offering you some capital protection should the stock market fall. However, if the FTSE does fall more than 50% you could lose some or all of your initial investment.
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7.5% fixed income, monthly payments
Offering a higher fixed income is Meteor’s FTSE 5 Monthly Income Plan (Morgan Stanley acting as the counterparty) which offers a fixed income of 7.5% each year, paid to you as 0.625% each month, again regardless of the performance of the stock market. The trade off for such a higher level of fixed income is that the return of your initial capital is dependent on the performance of five FTSE 100 shares rather than the Index as a whole. If the value of the lowest performing share at the end of the term is less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.
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With the FTSE recently passing its highest level on record, plans which offer the opportunity for investment level returns if the stock market only goes up a little, or even goes down slightly, may be of interest to many investors. By using your ISA allowance of £15,000 for 2014/2015, you could maximise the tax-free potential of any investment you make while the FTSE is high. Additionally, some investment ISAs allow you to invest next year’s ISA allowance of £15,240 at the same time, offering you the potential to invest up to £30,240 per individual (or £60,480 per couple), tax free.
The end of the tax year is fast approaching, so don’t delay. Applications must be received by us by Wednesday 1st April 2015.
Investments with the ability to mature early
One particular type of fixed term investment which seems to be popular in all kinds of market conditions is the autocall investment or ‘kick out’ as it is more commonly known. These investments have the ability to mature early thereby offering the potential for attractive returns after a relatively short period of time.
Whether the plan kicks out in the future is usually dependent on the FTSE being at a particular level at a particular date, which is then normally referenced to its level at the start of the investment. If it does not meet any of the required levels throughout the investment term, no returns will be paid and your capital may be at risk. The early maturity feature which is unique to these plans brings a new element to the investment opportunity and means that although your longer term view of the FTSE is important, so is your view on the potential for the FTSE year on year.
There is now less than one month to go until the end of the tax year, which means that if you do not use your valuable tax-free ISA allowance of £15,000 by the deadline on 5th April 2015, you will lose it forever. The hunt for income remains a top priority for many investors both at this time of year and into the new tax year, and with many of our income investments open to both current year and 2015/16 tax year ISA subscriptions, there should be something to appeal to many investors. To help you decide where to invest, we have put together our top 5 income investment selections. We also give you our in-house view of each from Oliver Roylance-Smith, our Head of Savings and Investments.
5.28% fixed income with monthly payments
With fixed income investment plans you know exactly what you will be paid, when and for how long, which has its obvious appeal for those looking to plan for the future and are seeking a regular and defined income. The Enhanced Income Plan from Investec was our most popular income investment during 2014 with the current issue paying 5.28% annual income regardless of what happens to the stock market. Since most yields on income investments are variable this is a distinct difference which in the current climate could make for an attractive income alternative.
The 5.28% annual income is paid as 0.44% each month, which is high when compared to typical yields currently being paid by UK equity income funds. Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall, so you could some or all of your initial investment.
Fair Investment view: “5.28% tax free income (if held in an ISA) is the equivalent of 6.60% taxable income for a basic rate tax payer and 8.80% for a higher rate tax payer. This high level of fixed income and the monthly payment frequency are popular features and with ongoing uncertainty around future interest rates and dividend yields, this plan offers a competitive balance of risk versus reward that could be considered by both savers and investors.”
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With less than a month to go, time is running out to maximise the valuable tax benefit of your ISA allowance before the deadline on 5th April 2015 – otherwise it is gone forever. The ISA allowance for the current tax year is £15,000. For those looking to use some or all of this allowance, or perhaps transfer existing Investment ISAs, our head of savings and investment, Oliver Roylance-Smith, selects his top 5 growth investments for this ISA season.
9.50% each year, even if the FTSE stays relatively flat
The Enhanced Kick Out Plan from Investec offers the highest rate for an investment based on the FTSE 100 Index and will return 10.50% per year (not compounded) provided the value of the Index at the end of each year is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Your initial capital is at risk if the Index falls by more than 50% during the term and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall.se your capital will be reduced by 1% for each 1% fall.
Fair Investment view: “Knowing how to invest when the FTSE is high continues to be a challenge for investors, but the potential for double digit annual returns even if the FTSE only rises by a single point, perhaps helps to explain why this was our best selling kick out plan in 2014. The combination of high growth potential and the ability to mature early could make for a compelling opportunity in the current market.”
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3.2 x any growth in the FTSE above 90% of its starting value
The FTSE Defensive Supertracker Plan from Morgan Stanley offers a return linked to any rise in the FTSE 100 Index over the six year term, which is then multiplied by 3.2, subject to maximum growth return of 64%. The main feature of this plan is that the growth is based on 90% of the FTSE’s starting value, so the returns you could achieve are as follows:
FTSE falls 10% or more: no growth
FTSE falls 5%: 16% growth
FTSE ends the same: 32% growth
FTSE rises 5%: 48% growth
FTSE rises 10% or more: 64% growth
If the FTSE has fallen by more than 10% on the end of the plan, no growth will be paid and your original investment will be returned in full unless the FTSE has fallen by more than 50%. If it has, your capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “This plan could be a compelling opportunity for investors concerned about the historically high level of the FTSE and would therefore like to include a defensive element to their investment with the maximum return of 64% being achieved provided the FTSE rises by at least 10%. By receiving well over three times any rise in the Index, the plan also offers investors the opportunity to beat the stock market.”
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With the end of the tax year less than a month away, making sure you use your ISA allowance to take advantage of one of the UK’s most popular tax shelters should be a top priority. But if you are wondering why you need to consider your ISA options or what all the fuss is about, we offer you 5 good reasons to use you ISA allowance.
1 – The allowance has never been higher…
At the start of each financial year, HMRC set a limit on the amount each individual can put into an ISA over the course of the next twelve months – 6th April to the following 5th April. This is known as the ISA allowance. This year’s allowance is £15,000, which is the highest it has ever been, and after 5th April 2015 it will rise further still, to £15,240. Because many ISA providers are open to ISA applications for this tax year and the coming tax year, this means that each individual could potentially put away £30,240, tax-free, this ISA season. That’s £60,480 per couple.
2 – …Or more flexible
In previous years, you could only hold up to half the annual ISA allowance in a Cash ISA and the rest had to be put into Stocks & Shares ISA. This year, the way in which ISAs work changed – there’s now no restriction on how you use your allowance, as you can use the full amount for a Cash ISA, an Investment ISA, or a mixture of the two in any proportion you wish.
3 – Shelter your money from the tax man – you don’t pay tax on any income or growth
Any interest received or capital gains made are not then subject to tax, whether held in a Cash ISA or an Investment ISA, and there’s no need to declare it on your tax return. If you’re a higher rate taxpayer this means that you get to keep hold of 40% more of the interest on your hard-earned cash than you would in a non-ISA savings account. Based on £10,000 receiving a 5% annual return, this is the difference between receiving £500 within an ISA or £300 outside of an ISA (or £500 versus £400 for a basic rate taxpayer). Why let the tax man take away money that you could otherwise keep?
With the 2015 ISA season in full flight, time is running out to maximise the valuable tax benefit of your ISA allowance before the deadline on 5th April 2015 – otherwise it is gone forever. Many investors will be looking for the opportunity to receive tax-free income from their ISA allowance, which currently stands at £15,000 until the end of the tax year. With the potential to use this entire amount in either a cash or investment ISA, now could be a great time to make the most of tax-free income opportunities for your 2015 ISA allowance as well as looking towards high-income ISA options for the new tax year ahead.
Why seek income from your ISA allowance?
Generating an income is one of the most common goals when it comes to investing, and so the opportunity to receive tax-free income is one that investors will not want to miss out on. As record low interest rates continue, and the returns available from fixed rate bonds remain unappealing, it is understandable why many investors are turning to income generating investment opportunities. Using your ISA allowance allows you to receive all the benefits of this income tax-free, thereby protecting more of your hard-earned capital from the taxman.
Get frequent income payments
There are many options to consider when seeking income from your capital via an ISA, including the level of income offered, degree of risk, and frequency of income payments. Many investment plans offer the option of annual, bi-annual, quarterly payments, but for those seeking regular income, a plan which offers monthly income payments is often the most appealing.
Take advantage of ISA transfers
Another priority at this time of year is to review your ISA transfer options. Make sure that you don’t squander the valuable tax efficient benefits of an ISA by keeping your capital in a poorly performing investment. If you find that your current ISA is no longer paying a competitive rate, most ISAs permit you to transfer existing ISAs to them without charge – although don’t forget to check whether there are any penalties from your existing provider. All of the plans listed below are available for both new ISA investment and ISA transfer.
With time running out to meet the 5th April end of tax year deadline, we bring you our selection of some of the best Cash and Investment ISAs available. We also include some alternative options for those who are seeking the potential for a higher return while still protecting their money, as well as our best-selling fixed income investment, for those considering investing their existing ISAs or new ISA allowance.
New ISA Rules – Save up to £15,000 in your cash ISA
As a result of new ISA rules which came into effect on 1st July 2014, your ISA allowance for the current 2014/15 tax year is £15,000. You can put some or all of this allowance into an Investment ISA, or some or all of the allowance into a Cash ISA. Bear in mind that that these allowances are per person, so a couple can put up to £30,000 in total into a cash ISA before the end of the tax year. Make sure you remember the most important end of tax year deadline which is midnight on 5th April. Note that many ISA providers will need your application – and possibly your cleared funds – before this date and that some ISA plans have an earlier deadline for ISA transfers.
2015 Cash ISA selections
Instant access Cash ISA selection
If you want to be able to access your money in an instant, the NatWest Instant Access Cash ISA offers a rate of 1.00% (variable) on balances of over £25,000, and a rate of 0.50% (variable) on balances below £25,000. Interest is paid monthly, and transfers in are permitted, meaning that if you transfer in cash from previous years’ ISA you may well be eligible for the higher 1.00% rate as your total amount held may be greater than £25,000. The account is easy to manage in branch, by phone and online, and is open to UK residents aged 16 and over.
Click here to compare other instant access cash ISA options »
Medium term Cash ISA selection
For those looking for a medium-term ISA option, the Aldermore 3 Year Fixed Rate Cash ISA offers a return of 2.20% (gross) with a minimum deposit of £1,000. Interest is calculated daily and can be paid either monthly or annually. Transfers from other ISA providers are available, and the account can be managed by phone, by post or online. You can withdraw cash early if you need to, but be aware that to do so means that you will be subject to loss of interest.
Click here to compare other medium term fixed rate Cash ISA options »