Every Little Tax Break Counts

The first four months of the year has already passed and has seen the FTSE100 move over 9%. 2012 also delivered a positive return for the benchmark FTSE100 Index with a rise of nearly 6%. There are no guarantees for 2013 however…

What is almost guaranteed is that interest rates being offered on deposit, savings and cash ISA accounts will struggle to keep pace with inflation which is currently hovering at 2.3% pa.

The average interest rate on offer for a cash ISA is now just 1.74%, according to recent research by Moneyfacts. This represents a big drop from rates a year ago which averaged 2.55%. The fall is widely believed to be partly due to the fact that financial service providers no longer need to generate as much custom from savers in the wake of the Bank of England's Funding for Lending Scheme with both instant access and fixed rate ISAs being affected.

Austerity has been the buzz word for the government and will be in general parlance for a few more years to come with the economy struggling to make headway. With this rather downbeat backdrop, any tax break offered should be considered and taken advantage of.  

Stocks & Shares ISA’s, introduced in 1999 with an annual allowance of £7,000 have been such a tax friendly home and we have seen the annual allowance increase to its current rate for the 2013/14 year to £11,520. For married couples this gives a significant £23,040 that can be invested in a tax friendly investment this year. Some that have taken advantage by maximising their contributions over the past 26 year when Personal Equity Plans were first introduced and have invested wisely, are now ISA Millionaires.

For 2013/14 the system will work in the same way as last year ie you can invest the full amount into a stocks and shares ISA, or you can invest up to £5,760 into a cash ISA and the remaining balance into a stocks and shares ISA.

ISA’s offer one of a number of tax efficient ways of saving and may not be suitable for everyone and it's sensible to have some savings in cash for security and easy access in the event of an unexpected emergency.

ISA’s are a use it or lose it tax break and therefore failure to take action means the allowance is lost for good. If you need some advice or guidance we would be more than happy to help you.

Ian Poysden Dip Pfs
Managing Director