Shop wisely in ISA season

Mar 14 2006

By Jane Hall, The Journal

You have until April 5 to use up your £7,000 tax-free Isa savings for this financial year. Investment firms are geared up for the annual `Isa Season' as the end of the tax year looms. It's a tricky time for investors who want to make the most of their tax-free allowance before the April 5 deadline passes. Should they put their faith in the stock market or stick to cash? Should they opt for one of the so-called `fashionable funds', with spectacular past performance, or be wary of such claims and play safe? Or should they be drawn in by one of the many tempting Isa special offers that always seem to crop up at this time of year? Story continues ADVERTISEMENT A staggering 119 Association of Investment Trust Companies (AITC) - over 50% of members - currently have offers on the table for investors willing to entrust their cash to them. But consumers will need to stay on their toes. For while many investment trusts and their managers have ongoing deals, such as no initial charges or no annual plan levy, others have deadlines. And, as the countdown to April 5 begins, investors will also need to be quick - some Isa offers expire as early as March 29. Introduced in 1999 by the Labour Government, as a replacement to the Conservative's Tax Exempt Special Savings Account (Tessa) and Personal Equity Plan (Pep), Isa sales have proved disappointing in previous years because of fears over the stock market and Chancellor Gordon Brown's plans for their investment limits. But, by the end of 2005, holdings of cash Isas had passed the £110bn mark. This has doubled from £53.9bn just five years ago. Isa funds under management in January also rose to £46bn - 23% higher than for the same period in 2005, prompting some analysts to predict there is an upturn in investor confidence in equities on the back of improved stock market performance. Doug Naismith, managing director, European Personal Investments with Fidelity International, says: "This is a clear indication that we are in for an Isa revival this year. "Industry Isa sales, both gross and net, are buoyant - significantly higher than last year - reflecting an upturn in investor sentiment. "This upward trend is mirrored in Fidelity Isa sales which are up 131% on the same period last year. "The appetite for equity investment is unsurprising given the improvements in stock market conditions over the last 12 months." The Isa season - which runs from January to April - is expected to receive an extra boost this year. Property funds and funds of funds will be allowed to be included in an Isa wrapper for the first time. These have previously been restricted from being included in Isas because the asset class does not feature on a European standard of eligible investments. Commercial property funds will be the greatest beneficiary of the rule change, and it is expected that an influx or cash will flow into these. Fidelity, F&C, Britannic, Norwich Union and Legal & General are just some of the firms who have added to their Isa range in this way. But while tax-free savings are undoubtedly a hit with savvy savers, too many people are still missing out. Research from Bradford & Bingley reveals that while 61% of the UK population has some sort of savings account, only 25% are taking advantage of Gordon Brown's `saver friendly' scheme by putting money in an Isa. Savers are, therefore, walking away from precious pounds that could be lining their pockets rather than those of the Chancellor. Bradford & Bingley says the difference between investing in an average savings account or in a competitive Isa can be up to £78 per annum. Under the rules, every adult can invest up to £7,000 per tax year (April 6 to April 5) in a maxi share Isa. However, if you already have a cash mini Isa for this tax year then you can have only a mini share Isa, with an investment limit of £4,000. If you don't use your Isa allowances by April 5, you lose them forever. But the Isa wrapping which allows you to shelter your choice of shares, bonds or funds from the taxman, is smaller than it used to be. Since dividend tax was abolished, the only tax protection for basic rate taxpayers is from capital gains tax. F&C has expressed concern that some investors have ignored the accounts as a result. "While the Government has undoubtedly reduced the attractions of Isas, it would be wrong to ignore them as valuable long-term savings tools. "Isas are still important allowances since all capital gains made within them are free of tax; there is no additional income tax liability to pay on distributions and investors don't even have to disclose them on their annual tax return," says Jason Hollands, director, head of communications at F&C Asset Management. "Investors need to assess the value of the Isa tax relief over time. "Unlike a pension, Isas do not offer an upfront tax rebate - the benefits are designed to kick-in later. As the value of the investment grows, as one hopes it will, then at some future date the investor can either cash in tax-free or transfer the plan into income bearing corporate bond funds where all the yield will be tax free. "This latter strategy is tax-efficient for anyone who is an income tax payer, not just those liable to the higher rate. "Isas therefore remain relevant for basic rate tax payers." F&C points out that in the case of most Oeic-based Isas, including its own plan, there are no additional charges to pay on top of underlying fund costs. "If you are going to invest in funds then it almost certainly makes sense to invest your first £7,000 each year in an Isa - even if you are not currently a taxpayer, since in most cases there will be no extra cost for the wrapper," adds Jason. "By building up a pot of Isas, it keeps your money tucked away from the Chancellor in future years when your tax status may have changed." However, you should think about investing in a shares Isa only if you are willing to take some risk with your money. Even the lower risk funds could lose you cash. And don't get carried away by fund managers' special offers - or get caught up in the last-minute rush to flog Isas. An investment is not a dress you bought in the sales because you were caught up in the flurry to bag a bargain. You can't shove an Isa into the back of a wardrobe and forget about it. And you can't change your mind and take it back - there's no cooling off period for these investments. ********** An ISA fan who is investing for the long-term Patricia Owers is a great fan of equity-based Isas. Every year she invests the maximum £7,000 and, while she admits she has made losses due to the vagaries of the stock market, she looks at her investments in the long-term. Patricia, a retired bank employee, who lives in Woolsington, Newcastle, with husband Keith, 60, a former production manager for a pharmaceutical company, invests via her broker, St James's Place. She currently has her money tied up in three unit trusts - Great Europe Progressive, UK and General Progressive and Recovery Unit Trust. Patricia, who describes herself as `fiftysomething' and looks after grandchildren Joseph, three, and one-year-old Ailsi, three days a week for son Robin and daughter-in-law Kari, says she is a high-risk investor. "But I am investing for the long-term," she says. "I've left the money where it is - I don't pick at my Isas. I invest the full amount around the autumn of each tax year. I don't think it's a good idea to leave picking your Isa until the run-up to April each year as it seems such an important decision to leave until the last minute. "I have other investments, but I believe everyone should take advantage of the tax-free status offered by an Isa." Investiment trust ISA offers Provider: Aberdeen Asset Managers. Offer: No initial plan charge. Low fixed annual plan charge of £24 +VAT. Offer expires: By 5pm March 29, 2006, for postal applications and 10pm the same day for online. Top-up Isa applicants have until April 5. Contact number: (0500) 000-040. Website: www.invtrusts.co.uk Online application facility: Yes. Provider: Advance UK Trust PLC (`ADU'). Offer: No annual management charge on investments in ADU. Offer expires: March 31, 2006. Contact number: (01892) 510-515 (Jarvis Investment Management Limited). Website: www.pro-asset.com Online application facility: No, but you can download the application form from the website. Provider: Alliance Trust Savings. Offer: No set-up or annual charge. Offer expires: April 5, 2006. Contact number: (08000) 326-323. Website: www.alliancetrusts.com Online application facility: No, but you can download the brochure and application form from the website. Provider: Allianz Global Investors. Offer: No initial charge (£30 annual management charge). Offer expires: 5pm April 5, 2006. Contact number: (0800) 317-573. Website: www.allianzgi.co.uk Online application facility: No, but you can download the application form from the website. Provider: Baillie Gifford. Offer: No initial charge or dealing commission. Flat rate management fee of £30 (+VAT) per year. Offer expires: March 29, 2006 (cooling off period). Contact number: (0800) 027-0133. Website: www.bgisas.com Online application facility: No, but you can download the brochure and application form from the website. Provider: Close Finsbury Asset Management Limited. Offer: Free dealing for Finsbury Worldwide Pharmaceutical Trust and Finsbury Technology Trust (ie usual 1% dealing fee is waived on all purchases into these two trusts). There is no annual fee on the ISA. Offer expires: 5pm April 5, 2006, for postal applications and 10.30pm for online. Contact number: (0800) 169-6968. Website: www.closefinsbury.com Online application facility: Yes. Provider: The BNP Paribas Electric & General Investment Trust ISA. Offer: No initial or transfer in charge. £30 + VAT annual charge. Offer expires: March 29, 2006. Contact number: (0845) 358-1113. Website: www.electricandgeneral.com Online application facility: No. Provider: F&C Management Limited. Offer: Initial set-up fee of £50+VAT abolished. Offer expires: Midday April 5, 2006, for postal applications and 10pm for online. Contact number: (0800) 136-420. Website: www.fandc.com/isa Online application facility: Yes. Provider: Fidelity International. Offer: 3% initial charge waived on all ISA investments. Offer expires: Midnight April 5, 2006 for both postal and online applications. Contact number: (0800) 414-110. Website: www.fidelity.co.uk/its Online application facility: No. Provider: Glasgow Investment Managers - Glasgow Income Trust, Shires Income Trust, Shires Smaller Companies. Offer: Waiving the initial 1% charge on The Glasgow ISA and the £30 charge to transfer an ISA or PEP into the Glasgow Investment Collection. Offer expires: March 31, 2006. Contact number: (0141) 572-2700. Website: www.glasgowinvestmentmanagers.co.uk Online application facility: No. Provider: Henderson Global Investors. Offer: Free dealing on ISAs - waiving 1% dealing charge on all Investment Trust ISAs and PEPs, including all subscriptions, transfers, switches and top-ups. Offer expires: March 30, 2006. Contact number: Private Clients: (0800) 832-832 or e-mail: help@henderson.com Website: www.itshenderson.com Online application facility: No. Provider: Invesco Perpetual. Offer: No initial charge. Offer expires: March 29, 2006. Contact number: (0800) 0850-8677. Website: www.invesco.co.uk/investmenttrusts Online application facility: No. Provider: JPMorgan Asset Management. Offer: 1% transaction charge waived on all lump sum investments (min £1,000). Offer expires: 5pm March 29, 2006. Contact number: (0800) 403-030. Website: www.jpmorgan.com/assetmanagement Online application facility: No, but you can download the application form from the website. Provider: NatWest (for The Law Debenture Corporation plc). Offer expires: For postal applications 5pm April 5, 2006, so long as original application and cheque/debit card details are received by then. Contact number: (0207) 334-5200. Website: www.lawdeb.co.uk Online application facility: No. Provider: Martin Currie. Offer: No set-up or annual charge. Offer expires: April 5, 2006. Contact number: (08000) 326-323. Website: Trusts available through Alliance Trust Savings, www.alliancetrusts.com Online application facility: No. Provider: Personal Assets Trust. Offer: Zero charge. Offer expires: March 29, 2006. Contact number: (0131) 225-9995. Website: n/a. Online application facility: No. Provider: The Scottish Investment Trust PLC, The SIT ISA Plan manager: SIT Savings Ltd. Offer: No initial or exit plan charge. The ISA annual management fee is 0.6% capped at £30 + VAT. Offer expires: For postal applications before 12 noon on April 5, 2006, at Halifax Share Dealing Ltd, Trinity Road, Halifax, West Yorkshire, HX1 2RG. Existing SIT Isa holders who wish to make a lump sum investment may do so by calling (0845) 850-0181. Contact number: For literature: (0800) 424-422. For further information: (0131) 225-7781, or email: heather@sit.co.uk Website: www.sit.co.uk Online application facility: No, but you can download the application form from the website. Provider: SVM UK Active Fund. Offer: No initial plan charge, one free switch per annum. Offer expires: April 5, 2006. Contact number: (0800) 019-9440. Website: www.svmonline.co.uk Online application facility: No but application forms can be downloaded from the website. Provider: TR Property Investment Trust ISA (through BNP Paribas). Offer: No initial or transfer in charge. £30 + VAT annual charge. Offer expires: March 29, 2006. Contact number: (0845) 358-1113. Website: www.trproperty.com Online application facility: No. Provider: Witan Investment Trust. Offer: Free share dealing (normally 1%). Offer expires: 5pm April 5, 2006. Contact number: (0800) 082-8180. Website: www.witan.com Online application facility: No. * Courtesy of the Association of Investment Trust Companies. For more details on offers and a free Isa factsheet call (0800) 085-8520, www.aitc.co.uk

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