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More than five million people will
have put money into Individual Savings Accounts to "beat the
taxman'' by its deadline on April 5. That's the prediction of fund
manager M&G; - but global stock market turbulence has dented sales,
even though savers can start an ISA with £50 in Tesco, or a pound
coin in Bank of Scotland branches.
ISA sales are down 30-60% on a year
ago, when dot-com mania peaked, amid jitters in markets either side
of the Atlantic. Savers can invest up to £7,000 in ISAs in the current
tax year with a mix of shares, cash and insurance company funds.
Any capital gains and dividends earned are free of income tax. They
can cash in all or part of an ISA at any time without penalty -
and never mention it on their tax return. But for a decent chance
of the sort of gain the taxman might share, you need to know which
sector of the market is going up. Right now, nobody does - and savers
still nurse burned fingers from the last year's technology crash.
Cash mini-ISAs are a simpler call.
If spare cash in the building society earns interest taxed at source,
move £3,000 into a mini-ISA free of such duty. The choice is more
difficult when it comes to ISA shares. Some unit and investment
trusts holding stakes in low-risk companies could be worth more
in two or three years. But investors can take £7,200 of profits
- £14,400 if they also trade in their partner's name - on share
deals each year without paying tax. Unless profits exceed that figure,
the ISA tax shelter might be unnecessary.
ISAs really suit three groups:
- Those who build a sizeable sum,
perhaps for retirement, outside the taxman's grasp for the long
term
- Those who want to cut tax
payable on building society savings
- Those who like regular tax-free
income, typically from corporate bonds.
In this year's uncertain market,
Richard Craven, of discount broker HCF, gives these suggestions:
- Consider a feeder account which
takes your money before April 5 and feeds it into the market in
stages. Fidelity, a leading fund manager, says investors putting
£7,000 into an ISA might like £1,000 invested straight away - with
£1,000 tranches invested on the first of each month until October
1. Fidelity's FundsNetwork lists 436 funds from 31 providers
-Build an ISA of corporate bonds,
which are issued by companies to raise capital. Income is steady
and, as stock markets improve, money can be moved to equities
- For those without a lump sum,
try regular saving in a proven fund. Richard Craven tips Framlington
Health, SocGen Technology, Jupiter UK Growth and Invesco GT European
Growth - but they could be bumpy
- Use a discount broker who cuts
commission and management charges if you know the fund you want
to invest in
-If you don't know where to invest,
buy through an independent financial adviser. Commission is charged
at 3-5%
- Get the pamphlet entitled Thinking
about an ISA from IFA Promotions, phoning 0800 085 3250 or downloading
from www.unbiased.co.uk.
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