Top Tips To Maximise Your Isa Allowance

By Author: Malcolm Anderson
Total Articles: 6
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In the current economic environment, investing in ISA’s for a tax-free return on your money is a good way to make your finances stretch further.



The current overall ISA tax-break is £10,200 annually – and the good news is that this limit will be raised to £10,680 from the start of the new tax year on April 5. Thus, the 2011 ISA Allowance offers you more investment opportunities than ever before.



It’s important to bear in mind that if you don't use your annual ISA Allowance, you will lose it, since it cannot be rolled over into the next financial year.



The following guide will offer you expert advice on how to get the most of the ISA’s as a tax-break investment vehicle. Also see my previous article on the subject titled 'Easy Guide to Making the Most of Your ISA Allowance'.



Tax Efficiency over Top Performance


It's important to have the correct perspective when it comes to ISA’s – they are excellent for offering tax-free returns on your investments, but they should not be seen as good or bad ...
... based on their performance. This is a different issue which depends on the particular fund you or your adviser have chosen.



It's also essential to understand that you should never buy a fund just because it’s a top performer. Instead, you should take the time to understand why a fund performs well – it could be because you're invested in a booming but high risk sector or its success could purely be due to an exceptional fund manager.



Reliable Guidance


It's easy to feel overwhelmed when deciding on which type of savings and investment ISA's will best suit you. For this reason, it's a good idea to consider taking the services of independent financial adviser – they will be ideally placed to look at your overall finances and choose the best product provider to match your needs.



Long Term Planning for a Sound Investment Portfolio


ISA investment, especially when it comes to Stocks and Shares, provides the best returns over the long term, so don’t allow yourself to be swayed by short-term market trends or hype. It's important to be clear on what you’re looking to achieve, the level of risk you're willing to take and to also weigh in the investments you might already hold.



ISA's That Secure Your Children's Future


This autumn, it's expected that Junior ISA's will be launched. Although the figures have not as yet been officially announced, it's predicted they will have an annual allowance of between £3,600 and £5,600, for a choice of both Cash or Stocks and Shares ISA's. The money that is invested cannot be accessed by the child until they turn 18. Any cash presents given to children over Christmas can thus be soundly invested. If you take a Junior ISA out for your child when they’re very young, by the time they reach legal age a tidy nest egg will have grown from the returns.



ISA's for Retirement Planning


One of the main benefits of ISA's, that is often little understood by the general public, is their tax efficiency for retirement income planning. If you take out a Stocks and Shares ISA for equity income funds, these will invest in a range of UK and international companies, which currently yield between 3% and 5% return. This would give you an initial income that is better than deposit rates, plus, both your income and capital growth will only increase over the longer term. Whilst the value of your shares may rise and fall, the dividend income from a broad investment spread in high performing companies tends to remain reasonably stable and to rise over time. Thus, if you focus on your ISA income statements instead of your valuation statements, you will see your shares provide a sensible income return.



It's wise to consider both your pension and ISA investments as part of an integrated retirement strategy. If you put your investments into ISA's, they will be free of Capital Gains Tax. Be aware however that the interest on the income you receive will be tax-free, but this does not apply to dividends. These are subject to a 10% credit which is not reclaimable.



Phased Investment


If you're worried about the risks involved in a Stocks and Shares ISA’s because of how they fluctuate according to the volatile stock market, or if you're unimpressed by high interest rates on Cash ISA's, you can always minimise these factors through phased investment of your money over 6 or 12 months. That way, you won't be risking all your ISA money on the market at one time. Many ISA providers automatically allow a phased approach and you can use your full annual ISA allowance in this way.



Conclusion


Your annual ISA Allowance is a major tax-break just waiting to make your money work harder and reap better investment returns. By considering the advice in the above article, you will be well placed to take advantage of all that ISA's can offer.



About the Author: Malcolm Anderson is an independent advisor on the UK ISA Allowance.