In a Tax-Free World, Isas Will Still Be the Best Bet
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Invest like Pension Doctor Rockefeller £1m dilemma Pension & Isas The all-time master Our reader’s pension Special Report of putting capital to has breached the work lifetime allowance Eight pages of help and advice on page 6 page 5 investing, saving and making the most of the new pension freedoms INVESTI NG ADVI CE ROUTES T O INCOME I SA I NHERITANCE P ENSIONS D O CTOR ASK AN E XPE R T YOUR MONEY In a tax-free world, Isas will still be the best bet From April 2016 most people won’t be taxed on savings income. But Isas will still remain invaluable, says Kate Palmer igher-rate taxpayers remain permanently free from tax. Nor will be able to earn do Isas lose their precious ability to £500 savings interest shield investors from capital gains tax. before tax is due, and For investors holding shares and funds basic-rate taxpayers – the best investments for beating £1,000 from next infation over longer periods – this tax April. There will be a separate perk remains extremely valuable. H £5,000 allowance for dividends. The changes – which will take many What’s changing? people’s savings outside of the tax net The new “personal savings allowance” altogether – have been portrayed as will, from April, take most people’s the “death knell for Isas”. But that savings interest out of the reach of the conclusion would be wrong. taxman. Basic-rate taxpayers will be Further, much-needed changes to able to earn £1,000 in interest with no Britain’s creaking Isa system mean tax to pay, under the change next year could be a better time than announced in the Budget in March. ever to save in the tax-free accounts. Higher-rate (40pc) taxpayers will be New “fexible” Isas mean savers able to earn £500 interest with no tax. will be free to take money in and out From 2016, a basic-rate taxpayer of their Isa within the tax year up to would need to save a total of £60,606 the value of their allowance. This will before they are taxed on their interest, ARRS enable far more fexibility for savers M and allow more of their assets to Continued overleaf TIM * * * * * * * * * 2 * * * Tuesday 10 November 2015 The Daily Telegraph YOUR MONEY PENSIONS AND ISAS SPECIAL REPORT including how long the personal savings allowance will be Escape the tax net and keep your interest available for.” CONTINUED FROM PAGE 1 Isa allowance at the beginning of Isas’ real attraction is that And don’t forget Isas’ other the tax year, you were deemed to have they shield assets from tax positive perks used your full allowance – even if in the long term And for the 150,000 married Isa assuming that they get today’s best you made withdrawals from your Hundreds of people have already savers who die each year, another easy-access rate of 1.65pc. account again that same year. saved more than £1m in their Isas. recent reform means they can pass If you’re on a fxed deal, you’d need “It’s a stupid rule,” said Anna Bowes They will have made most of their the tax-free wrapper to their partner. to save a total of £32,154 before tax of the rate-comparison website gains through growth-oriented Before December 2014, if an Isa is payable on the best fve-year 3.11pc Savings Champion. “Before, if your investments, but they could easily holder died they could not pass this fxed rate account, where interest is circumstances changed and you switch holdings to income-producing on to their spouse. The rule also paid annually. needed to access that money the assets if, for example, they need to applies to civil partners. Even those who are in the higher taxman said, ‘tough – you can’t draw an income later in life. A spouse inheriting savings their (40pc) tax band would need to save put it back in your Isa.’” And because their assets are all partner held that were sheltered from £30,303 before paying tax on the But there are limits. Savers can’t safely within the tax-proofng tax under the “personal savings easy-access account. There would withdraw money held in Isas from wrapper of an Isa, that income will be allowance”, however, would not be be tax to pay above £16,077 on the previous tax years without losing its paid tax-free. An individual’s savings given this tax perk, unless they did longer, fve-year fx. tax-free status for ever. and dividend allowance will still exist, not already earn enough interest to Separately, a new £5,000 dividend Some commentators say fexible and can be applied to any additional reach the full allowance. allowance is being introduced. Isas will be an “administrative investments outside the Isa. And from Aptril 2016 an Isa will This would enable investors in nightmare” for providers, and cause For long-term investments, capital be the only way to grab a £3,000 shares or funds to receive up to further confusion about the rules gains tax remains a threat. Investors government bonus for people buying £5,000 in divi payments before tax around tax-free savings. paid a total of £5.5bn in capital gains their frst home. Among those savers is due. With FTSE blue-chip shares But savers are expected to use tax (CGT) in 2013-14, the last year for are Britain’s nine million private currently yielding under 4pc, this the new freedoms. One in seven which data is available – an increase renters who may opt for a “Help to would mean an investor could Isa savers will treat their Isas like of an astonishing 43pc from the Buy” Isa which pays a £50 bonus for hold approximately £130,000 a bank account by withdrawing previous tax year’s fgure of 3.4pc. the face of it won’t need to utilise an every £200 a person saves. outside an Isa before having to money and reinvesting without Isas enable investments held within ‘A crucial change Isa. But we can’t predict what rates Savers will have access to their own pay tax on dividends. afecting their tax-free allowance them to grow free of CGT. Although is the increased will be like in the future.” money and will be able to withdraw from next year, according to recent for the moment cash Isas pay lower If the Bank Rate was increased to funds from their account if they need So doesn’t that change research. And interest rates on rates than taxable accounts – fexibility of Isas’ 2pc, then the above-mentioned easy- them for another purpose, but the mean Isas are bound to cash Isas may rise as a result. something that could make taxable access account could increase from bonus will only be made available for lose their attraction? Andy Caton from the Yorkshire accounts seem more immediately 1.65pc to 3.65pc, meaning that home purchase. Far from it. One crucial change Building Society, which conducted attractive for cash savers – this basic-rate taxpayers would be able “Banks have been told by the will be in the increased fexibility the research, said the changes could situation could change. to save a total of £27,397 before they Government to ofer competitive rates of Isa accounts. This will enable lead to more money being saved in “We’re in an environment where had to pay tax, and higher-rate on these Isas,” said Ms Bowes. savers to put money into an Isa, Isas: “The new Isa fexibilities are interest rates are incredibly low, taxpayers £13,698. “What’s more, banks and building withdraw it, and replace it again likely to prove popular, with many partly due to a government policy “You should think very carefully societies are keen to tempt frst-time within the same tax year up to the savers being able to use these new that has kept lending cheap,” said before taking all of your savings out buyers because they make money full year’s allowance, which is freedoms to their advantage. The Ms Bowes. “Using today’s rates, of a cash Isa and moving them into from selling them mortgages. So (£15,240 for this year). changes will incentivise existing Isa most people are going to earn ordinary savings,” warned Ms Bowes. they might be compelled to ofer a Before, if you deposited the full savers to put away more, not less.” interest tax-free on savings and so on “There are just too many unknowns – better rate,” she added. How does the additional customers. Nationwide, paying 1.5pc, allowance work? will accept new deposits after it is ‘Secret’ for too long: From April, surviving spouses or civil satisfed the existing provider has partners of individuals who died on or been notifed of the death and no after 3 December 2014 can enjoy an other additional permitted additional Isa allowance equivalent to subscription account has been extra Isa allowance the sum their loved one had sheltered opened. Other providers ofering on the day they died. accounts include Santander (paying They should be able to open a cash 0.5pc) and Kent Reliance (1.35pc on distribution of estates and potential or stocks and shares Isa account easy access or 1.5pc fxed for a year). Complex rules blamed inheritance tax bills can seem equivalent to this amount, whether or Some banks and building societies tortuous. The Government attempted not they expect to be inheriting the do not have special arrangements but as spouses lose inherited to sidestep all this by allowing a nest egg, provided they have an will still consider applications.