Meet The Expert

The great divide

The Great Divide


HMRC figures show that many savers are still at risk of wasting the tax benefits of their ISA allowance.

There is no doubt that ISAs have been a big success in helping foster the UK’s savings habit. A new report from HMRC¹ reveals that the market value of all ISA holdings is now around £518 billion, a testament to the popularity of the scheme, which is estimated to have cost the Exchequer £2.6 billion in tax relief last tax year.

Encouraged by the government’s move to raise the annual ISA allowance by nearly 50% over the last five years, the average subscription in the 2015/16 tax year rose to a record high of £6,338. Overall, around £80 billion was subscribed to ISAs last year, an increase of £1 billion on 2014/15.

Yet the figures also reveal that the majority of ISA savers are not making the most of the long-term tax-saving and investment opportunities on offer. Overall, only 9% of individuals maximised their allowance, a figure that rises to 31% for those with income of £100,000–£149,999.

In the 2014/15 tax year, after the limit was removed on how much of the allowance could be deposited in cash, subscriptions went up by £20 billion. Of the total invested last year, 80% was subscribed into Cash ISAs, continuing a trend that has remained broadly static for a number of years. Overall, 52% of ISA funds are held in cash, despite many savings accounts now registering all-time low rates of interest.

The HMRC report shows a stronger preference for Stocks & Shares ISAs over Cash ISAs among higher income groups, whilst the opposite is true for those in the lower income brackets.

Game changers?

But are these trends likely to change? The 2016-17 tax year has heralded the introduction of the new Personal Savings Allowance and yet more cuts to savings rates following the Bank of England’s decision to halve the base rate in August. Moneyfacts reported last month that the average Cash ISA rate had fallen below 1%, and there are warnings of further cuts if the Bank of England reduces the base rate again.

The Personal Savings Allowance enables every basic rate taxpayer who saves into a regular savings account, current account or fixed-rate bond to pay no tax on the first £1,000 of interest. For higher rate taxpayers, the first £500 of interest will be tax-free. At the current average interest rate², a basic rate taxpayer could hold more than £204,000 in a standard instant access savings account, and receive all the interest tax-free.

Faced with the prospect of a ‘lower for longer’ environment for interest rates and investment returns, it remains to be seen whether savers will take advantage of the opportunity to invest their annual ISA allowance in assets with greater long-term income and capital growth potential.

¹ HMRC, August 2016

² Moneyfacts, 31 August 2016

The opinions expressed are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forecast, research or advice. 

 Welcome to Andrew Whiting Wealth Consultancy LLP, Senior Partner Practice of St. James’s Place Wealth Management  

Partners in Managing your Wealth

A wise decision to start contributing to an investment portfolio at a young age and allow time and compound growth to aid the investment performance could create a potentially life-changing return at retirement. 

The ability to achieve a rising combination of income and capital growth is important to combat the effects of inflation on the spending power of money, however with the current low interest rate this can pose a challenge for those relying on income from money held on cash deposit accounts. 

Improving the investment return on cash savings requires taking additional investment risk. Yet by carefully combining the different asset types, you can create an investment portfolio that maximises the income possibilities through dividend income, while controlling the risk to the investment capital.

Andrew Whiting Wealth Consultancy can talk through the options on how to start an investment portfolio in the best, most tax-efficient way to benefit young investors. Alternatively, If you are interested in discussing how to manage an existing portfolio or how to transfer wealth to the next generation; offering simply ways to reduce a future Inheritance Tax Liability, please contact Brett Linton on 0121 215 5912 or Click Here to visit our website. Please quote Just Do Property in all communications

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Rate this blog entry:
9 key interior design elements of British Colonial...
Why Manchester is competing with London when it co...


No comments made yet. Be the first to submit a comment