Posts Tagged ‘ISA season 2015’
The start of the new tax year brings with it a new and increased ISA allowance, which is open to every adult in the UK and is available right now. The recent Budget confirmed the ISA allowance would increase by inflation so the current 2015/16 tax year limit stands at £15,240 and has been available since 6th April. For investors looking for tax free income and who want to make the most of this new allowance straight away, we take a closer look at our most popular income plan during the recent ISA season and explain why it might be a compelling option for all those seeking income, both savers and investors alike.
Investors seeking income
Whether you are new to investing or a seasoned investor, the need to generate an income is one of the most common demands put on our capital and can cover a wide range of savings scenarios. If you are one such investor actively seeking income then this fixed income investment plan is certainly worth a closer look.
In a nutshell
For those who wish to get the tax year off on the right foot, the Enhanced Income Plan from Investec is our most popular income plan this ISA season. The current version offers investors a fixed income of 5.04% each year for a six year term and pays income to you each month (equivalent to 0.42% per month). Your capital is at risk should the FTSE 100 Index (‘the FTSE’) fall by more than 50% during the term of the plan and fails to recover by the end of the plan term, in which case you could lose some or all of your initial investment. This is known as conditional capital protection and is one of the investment plan’s main differentiators from other types of income investments.
A high fixed income
A fixed income is rather uncommon amongst income investments which normally offer a variable income based on prevailing market conditions and the performance of the underlying investments. This is therefore a popular feature since it provides investors with the knowledge of exactly how much income they will receive, when and for how long. When held within an ISA, the 5.04% fixed income is also paid tax free. This is equivalent to basic rate tax payers receiving 6.3% interest and higher rate tax payers 8.4%.
Compared to cash
Since this investment offers a fixed income over a fixed period, it is relatively easy to compare those elements with cash and a guaranteed return that you would receive from a fixed rate bond of similar duration (subject to the bank/deposit taker remaining solvent). Although there is not a market for six year fixed rate bonds there has historically been a healthy market for longer term fixed rates with five year fixed rates traditionally offering the higher returns as compensation for you committing your capital for longer. Unfortunately the market here has declined with leading rates currently offering no more than 2.50%. This investment therefore offers a premium of 2.54% in return for putting your capital at risk.
So the main question to consider is whether you are prepared to risk your capital in return for just over double the interest you could receive from the current market leading fixed rate Cash ISA, where the return of your capital at the end of the term is protected. Is the additional 2.54% income each year worth the risk that the FTSE may fall by more than 50%?
Compared to investment funds
Some of the yields available from investment funds certainly catch the eye, with many bond funds offering yields in excess of 5%. There are three main differences between the Investec fixed income plan and investment funds:
The income from investment funds is not guaranteed and is dependent on the underlying holdings and market conditions. Since these will vary over time, so too will your income. The income from the Investec plan is fixed and so remains the same throughout the term.
The treatment of your capital is different to the Investec plan in that there is no conditional capital protection – your capital is fully at risk on a daily basis. This is important since the income yield and any rise or fall to your original capital should always be considered together since both have an effect on your overall return. For example a 6.60% income yield could be compelling in its own right but not so if it coincides with a 6.60% reduction in the value of your capital.
An investment fund generally invests in a number of holdings and with bond funds this can sometimes be in the hundreds. This has the effect of spreading the risk of your investment so if one of the holdings fails or falls in value significantly, it has less of an impact on your overall return. Your investment into the Investec plan buys securities issued by Investec Bank plc only and so your income and return of capital is also dependent on their ability to meet their financial obligations. This means the credit rating of the Bank becomes an important consideration.
Also remember that investment funds have annual management charges (normally up to 1%) which have an impact on the overall performance. There are no annual management charges associated with the Investec Enhanced Income Plan.
Fair Investment conclusion
When considering income investments it is important to understand fully how each investment works and the risks it entails. Whether this is inflation risk, risk of capital loss or fluctuating yields, it should always be remembered that it is the income and capital loss/rise combined that produce your overall return and this is before tax is taken into consideration.
Commenting on the Enhanced Income Plan from Investec, head of savings and investments at Fair Investment Company Oliver Roylance-Smith said: “As an alternative to open ended investment funds, the defined return and defined risk offered by fixed term investments offer investors an alternative approach to achieving income and an often competitive balance of risk versus reward.”
He continued: “Their conditional capital protection means that your initial investment has some protection against a falling market and the high level of fixed income, monthly payment frequency and fixed term provide a range of features that could be attractive to both savers and investors. Which of these features is the most appealing will vary among investors, but could equally appeal to fixed rate savers prepared to put their capital at risk in return for a high fixed income. Where else can you receive 5.28% fixed income each year, paid to you regardless of what happens to the stock market? It is therefore understandable why the Enhanced Income Plan from Investec Bank has been one of our most popular income investments.”
The plan is open for new investment ISAs (£15,240 limit), Cash ISA and Stocks & Shares ISA transfers and non-ISA investments with a minimum investment of £3,000.
Click for more information about the Investec Enhanced Income Plan »
Click here for our Select Range of bond income funds »
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
Tax treatment depends on current legislation and your individual circumstances which may change in the future. Before transferring an ISA please check there are no penalties for withdrawal from your existing ISA provider.
The Investec Enhanced Income Plan is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.
Further to last month’s Budget speech by the Chancellor, George Osborne, we give you a quick round up of the main changes around ISAs and what this will mean for both cash savers and investors.
New tax year, new limits – an even bigger allowance
From July last year, Mr Osborne significantly increased the annual ISA allowance to £15,000, allowing savers to squirrel more money away from the taxman than ever before; and because the allowance now rises in line with inflation, since 6th April 2015, the annual ISA investment limit for 2015/16 has risen by £240 to £15,240. Every UK adult gets their own allowance, so couples can save twice that amount. The limit for the Junior ISA (JISA) has also risen by £80 to £4,080.
Radically more flexible
A significant reform is that savers now have the freedom to withdraw and replace money in the same tax year without it counting towards their annual ISA allowance limit for that year, as long as the repayment is made in the same tax year as the withdrawal. This means ISA are now fully flexible so you can withdraw money without losing your tax benefits, provided you pay it back in by the end of the financial year. In the past, money taken out of an ISA lost its tax free status so any additional payments would count towards your ISA allowance for that tax year.
Junior ISA flexibility
In a change aimed at the younger generation, families who have taken out a child trust fund (CTF) can now convert it into a Junior ISA CTF’s were a tax-free savings wrapper for children born between 1st September 2002 and 2nd January 2011 which were replaced by the Junior ISA. Some CTFs have been unpopular with parents since they have combined disappointing performance with limited investment choice and high charges, although if you are considering transferring to a Junior ISA you will need to check that they are willing to accept the Child Trust Fund.
Passing on an ISA allowance
Further to an announcement made last December, married couples are now free to pass an extra ISA allowance, equal to the value of their ISA savings on death, to their surviving spouse. This means that couples can now pass the ISA tax breaks to each other however, passing the ISA tax status from parent’s to children is still not permitted. When the surviving partner dies, they will continue to fall inside the family estate for inheritance tax purposes.
“Help to Buy” ISA
A new “Help to Buy” ISA scheme was also announced, aimed at helping first-time buyers get onto the property ladder. Under the scheme, for every £200 a first-time buyer saves, the Government will top up the deposit with £50 up to a maximum of £15,000 in total. So, if a first-time buyer saves £12,000, the Government will add a £3,000 ‘bonus’ to the pot. Savers will have access to this money and will be able to withdraw funds from the ISA account if they need them for another purpose, but the bonus will only be made available for those using the money for a home purchase. The Help to Buy ISA will only be available on houses worth £250,000 or less, or £450,000 or less in London.
And remember the additional changes in place since last year:
- The ban on transfers from Stocks & Shares ISAs to Cash ISAs has been removed, thereby allowing full two-way transferability between deposits and investments and vice versa.
- The rule which prevents more than 50% of the total limit being placed in a Cash ISA has been scrapped and so the entire £15,000 NISA contribution limit can go into cash deposits, or any combination of cash and stocks and shares.
The Chancellor also confirmed tax breaks for non-ISA savings, via the introduction of a new “personal savings allowance” which will reward savers by not taxing the first £1,000 of savings income for basic rate savers, and the first £500 for higher rate taxpayers. Additional-rate taxpayers will not benefit. Mr. Osborne said that this reform would abolish the tax on savings for 17 million people.
Fair Investment view
Commenting on the Budget, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “The addition of the £1,000 savings allowance has largely removed the benefit of increased flexibility for Cash ISAs and with savings rates as they are, many savers may now consider the use of a Cash ISA unnecessary. But investors and those looking to achieve the potential for higher returns than cash has been able to offer in recent years, are the real winners from this year’s Budget. The latest ISA reforms have left investment ISAs more generous, flexible and tax-efficient and a couple can now save up to £30,480 knowing that any income or capital gains will not be subject to tax in the future. Used in the right way, this could build up substantial sums in a relatively short period of time.”
For more information, see some of our most popular Investment ISA pages below:
Click here for our Top 10 NISA Investment Plans »
Click here to compare our selection of Investment ISAs »
Click here to compare our selection of Share Dealing and Self-select ISAs »
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.
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.
Click here for more information »
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.
Click here for more information »
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.”
Click here to find out more »
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.”
Click here to find out more »
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.”
Click here to find out more »
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 »