Posts Tagged ‘nisa’

60 second ISA savers guide to the 2016 Budget

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Following last month’s speech by the Chancellor, George Osbourne, we give our 60 second guide to the Budget for ISA savers, offering a quick round up of the main changes and what this will mean for both cash savers and investors alike.

Your ISA Allowance

While Chancellor George Osborne may have taken the decision to maintain the Individual Savings Account (ISA) Allowance at £15,240 for this new tax year (2016/17), the chancellor also announced that from 6th April 2017, it will see a significant increase of £4,760 giving savers and investors a total allowance of £20,000 to spread between their ISA accounts over the 2017/18 tax year. The Junior ISA limit will remain at its current rate of £4,080.

Innovative Finance ISA

The recent Budget also introduced a new type of ISA which has launched for this current tax year. Announced in the Summer Budget of 2015, this has fallen slightly under the radar for many but this new savings option, entitled the ‘Innovative Finance ISA’, is designed to provide a tax-free wrapper for investors in Peer-to-Peer Lending (P2P). This ISA allows individuals to lend to others by using Peer to Peer Lending platforms but without paying tax on the interest they earn.

As this is a new distinct category of ISA, savers can open an IFISA along with a Cash ISA and a Stocks and Shares ISA (or Investment ISA), all within the same tax year – so any contributions into this type of ISA does count towards the £15,240 current tax year allowance. Although at present there are only a small number of P2P providers who have been authorised to offer their products within an ISA, there are a significant number who are awaiting authorisation. The area of P2P lending has seen significant growth in recent years and there will be more to follow on this later in the year…

Lifetime ISA

Possibly one of the biggest headlines for this year’s budget was the announcement by Mr Osborne of another kind of ISA which will launch in April 2017 – the Lifetime ISA. The Lifetime ISA will allow individuals aged between 18 and 40 to simultaneously save for both the purchase of their first home and their retirement. The ISA will work similarly to the current Help to Buy ISA, in that savers will be granted a 25% bonus on their contributions when used to purchase all, or part, of a new home (up to a maximum property value of £450,000 nationwide), with a maximum annual contribution limit of £4,000.

However, savers will not be limited in how much they can contribute each month and in addition to this, money withdrawn after the account holder’s 60th birthday will also enjoy the same bonus and can be used for any means. Savers will be able to receive their bonus on contributions made up until their 50th birthday, leaving the possibility to make a maximum individual contribution of £128,000 which would be matched by the government to a value of £32,000. Partial withdrawals from the account for other uses before the age of 60 will be allowed but will not benefit from the bonus or any interest upon it and incur a 5% charge.

Help to Buy ISA

With much of its function being replicated with the new Lifetime ISA, it was also announced that Help to Buy ISAs will be made unavailable to new savers from the 30th November 2019. Savers who opened a Help to Buy ISA before this date will be able to keep saving into the account, but they must claim the bonus by 1st December 2030. However savers waiting for the Lifetime ISA to launch should be aware that it is possible to open a Help to Buy ISA and then merge it with a Lifetime ISA when it launches in April next year. It is also possible to have both a Help to Buy ISA and a Lifetime ISA but individuals will only be able to benefit from one of the bonus payments when used to purchase a property.

Helping savers plan for the future

All in all this was a good budget for ISA savers, but we must not also overlook the significant reforms which have taken place since the New ISA (NISA) was introduced in April 2014 and which remain unchanged, including:

  • Increased flexibility – savers can divide their ISA allowance between Cash ISA and Stocks and Shares ISAs in whatever proportion they wish, especially welcome news for those who want to use their entire ISA allowance for cash savings which had been previously capped.
  • Increased ISA transfer potential – savers can transfer from a Stocks and Shares ISA to a Cash ISA, or the other way around. Previously, transfers from Stocks and Shares ISAs to Cash ISA were not permitted.
  • Tax-free interest in Stocks and Shares ISAs – interest is now earned tax free in a Stocks and Shares ISA whereas previously, with the exception of a Cash ISA, any cash held within the Stocks and Shares element of an ISA was subject to a 20% charge on the interest earned – paid to HMRC.
  • Withdrawals permitted – since last year savers may now withdraw and replace money in the same tax year, without it counting towards their annual ISA allowance provided that it is paid back in to the account by the end of the financial year in which the withdrawal is made. Previously money taken out of an ISA lost its tax free status, meaning that additional payments would count towards your allowance for that year.
  • Junior ISA flexibility – those who have taken out a Child Trust Fund (CTF) for their child are now permitted to convert the fund into a Junior ISA.
  • Passing on an ISA allowance – married couples can 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.

Combined, these ISA reforms give savers every opportunity to plan for the future, regardless of their stage of life.

Fair Investment View

Commenting on the Budget, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited said: “Along with the changes made to existing rules surrounding ISAs in the last two years, the 2016 Budget’s announcement of several new types of Individual Savings Account means that individuals may now utilise their personal ISA allowance with far greater flexibility than ever before, spreading their allowance between a variety of savings and investment plans to meet their needs.”

He continued: “But perhaps the most significant move is the increase to a £20,000 ISA allowance in 2017. Remember that just 2 years ago, the allowance stood at just £11,880, with a boost from 1st July of that year to £15,000. This recent announcement sees the limit rise from £11,880 on 6th April 2014 to £20,000 on 6th April 2017, a rise of £8,120 in just 3 years. This means that a couple could save up to £30,480 during this current tax year, increasing to £40,000 from 6th April next year, offering the potential to accrue considerable sums within their ISA accounts in a relatively small timeframe. Good news indeed for savers.”

For more information, see some of our most popular ISA pages below:

Click here for our Top 10 Investment ISA Plans »

Click here to compare our selection of Cash ISAs »

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.

Investment Focus – Investec Enhanced Kick Out Plan

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Fixed term investment plans that have the ability to mature early or ‘kick out’ each year seem to be popular whatever the market conditions but particularly so when the FTSE is at historically high levels. The Enhanced Kick Out Plan from Investec currently offers the highest rate of any kick out investment based on the FTSE 100 Index which helps to explain why this plan is proving so popular both with our existing customers as well as new investors. We take a closer look at the plan and review the risk versus reward on offer to see how this might make for an attractive opportunity in the current investment climate.

Background

Investors looking to gain a broad exposure to the UK stock market often look to investments linked to the performance of the FTSE 100 Index. But despite its recent dips, the Index continues at what are historically high levels, and so many investors find it difficult to decide whether now is the right time to invest or not.

Investors considering their options are often split down the middle – on the one side are those who feel confident that the Index can break through the 7,000 point barrier again and keep going, and then there are those on the other side who remain uncertain that the market will continue to rise.

Proving popular

The FTSE 100 Enhanced Kick Out Plan from Investec continues to be popular with both existing customers and new investors. Many of our existing customers have investments that have matured recently or are likely to mature early in the coming months, thereby providing them with the opportunity to consider new investment opportunities and many have considered this plan. For new investors, the headline rate of 10% is also proving a compelling opportunity in the current investment climate and has been particularly popular with those using their £15,240 New ISA allowance – so how does the investment work?

In a nutshell

The plan will return 10% 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.

Early maturity

The term ‘kick out’ refers to the ability of the investment plan to mature early depending on the movement of the FTSE 100 Index. Plans that have the ability to mature early and provide a competitive return on your capital have proved popular with investors in all types of markets.

The fact that investors can achieve investment level returns even if the market stays relatively flat could also be why this investment has proved particularly popular, whilst the FTSE remains at historically high levels.
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Using your ISA to invest when the FTSE is high

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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.
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Top 5 Income Investments for ISA Season

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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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Top 5 Growth Investments for ISA Season

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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.”
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.”
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5 good reasons to use your ISA allowance

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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?

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2015 Cash and Investment ISA selections

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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 »
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ISA Season Selections – Investment ISAs

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With ISA season well and truly under way, this is an important time to consider how best to make use of this valuable tax break and remember, if you do not use your ISA allowance before midnight on 5th April 2015, it is lost forever. With the need to review existing ISAs as well as making sure new investments offer the opportunity for higher returns, we bring you our selection of the best income and growth Investment ISAs the market currently has to offer.

Our Selections

Below we have listed some of our most popular Investment ISA plans, featuring both income and growth investments. With income needs continuing to play a critical role for many investors, the attraction of having tax free income is understandable. Whilst for investors looking for growth, we have a number of plans including those which take a defensive view on the stock market, as well as investments with the opportunity to mature early or ‘kick out’. With the potential for headline returns of up to 13% annual income and 20% growth, we cover a wide range of opportunities.

Defined return, defined risk 

All of the plans detailed offer you a defined return for a defined level of risk, which means that you know the exact terms of the plan prior to investing and exactly what needs to happen in order to provide you with the stated income or growth return. They also include what is known as conditional capital protection, whereby your original capital is returned at the end of the plan term, as long as the underlying investment has not fallen by more than a specified amount, normally 50% of its starting value. As savers continue to face the impact of record low savings rates, this feature could be an attractive option for those considering taking risk with some of their capital.

INCOME ISAs

5.28% fixed income each year, monthly payments

The Enhanced Income Plan from Investec was our most popular income investment during last year’s ISA season and continues to remain a best seller with income investors as well as savers looking for investment alternatives. The main appeal of the plan is that it offers a fixed income of 5.28%, which is paid to you as 0.44% each month regardless of the performance of the FTSE 100 Index. Capital is at risk if the Index 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 lose some or all of your initial investment.

Click here for further information » 

7.2% fixed income each year, monthly payments 

The FTSE 5 Monthly Income Plan also offers a fixed income with the current issue offering 7.2% each year, paid to you as 0.6% each month regardless of the performance of the stock market. The higher level of income is due to the return of your capital being dependent on the performance of five FTSE 100 shares – 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 further information » 
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10 Top Tips for 2015 ISA Season

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With less than 7 weeks until the end of the tax year, now is the time to consider making good use of your ISA allowance and squirreling away your hard-earned cash from the tax man, if you haven’t done so already. ISA season is an important time for savers and investors to review their existing ISAs as well as make sure they maximise new opportunities, and with the increased £15,000 New ISA allowance, this time of year has never been more important. To help you make the most of your ISA allowance, we’ve put together out Top 10 tips for the 2015 ISA season.

Tip 1 – Don’t miss the end of tax year deadline 

On the basis we can all be guilty of putting off until tomorrow those things which need to be done today, there’s a lot to be said for acting in good time. So before you do anything else ISA-related, make sure you remember the most important end of tax year deadline which is midnight on 5th April. This is the latest date for using your ISA allowance and since it cannot be backdated to a previous tax year – if you don’t use it, you lose it. 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. 

Tip 2 – Maximise your ISA allowance 

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 the entire allowance into an Investment ISA (Stocks & Shares ISA), or the entire allowance into a Cash ISA. If you decide to use some of the allowance in one type of ISA, you can also put any remaining balance into the other type. Also remember that these allowances are per person, so a couple can invest up to £30,000 in total before midnight on 5th April 2015.

Tip 3 – Understand what your ISA could achieve

Why pay tax on money that you can protect from the tax man? If you had invested the maximum into an Investment ISA since the 1999/2000 tax year, and it had grown at 7% each year, you would now have a lump sum close to £240,000. This is a significant amount, especially when you consider over £100,000 of this would otherwise have been subject to income tax and/or capital gains tax. 
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