Use Your ISA Tax Free Allowance to Maximise Your Investments
by Ritchie Mehta (13 October 2008)
The last few weeks have certainly been troubled times for investors. With the FTSE hitting a five and a half year low and property prices falling at the sharpest annual rate in 25 years. Even the super rich have not been immune to the downturns in these markets, as reports suggest that Lakshmi Mittal, the richest man in Britain, has lost a staggering £20 billion this year alone. However, as we move through the turbulence, some may feel that these market conditions present significant investment opportunities to buy low and sell high. Although this is risky strategy as you don’t want to catch a falling knife, if you are looking to invest it is best if you can do so in the most tax efficient way to maximise your returns.
The best way to invest tax free is to use an Individual Savings Account (ISA). At the beginning of the tax year, the government made a few important changes to the way an ISA worked. Firstly, they increased the amount an individual can put into an ISA to £7,200 and secondly, have got rid of the mini and max status of an ISA. Both these changes give the investor more flexibility to save/invest in both the cash and investment elements. So now an individual can opt to have a cash ISA with a maximum savings of £3,600 in a tax year, while leaving them with £3,600 to put into investments (with another provider if desired). Or alternatively, one can opt to utilise the whole £7,200 allowance for investment purposes.
If you are looking to use an ISA for investment purposes it is important to ensure that the investment vehicle qualifies for this financial wrapper. Generally speaking, you can either opt for a pooled investment such as an investment trust or a mutual fund where professional fund managers will look after your investment or alternatively if you would like total control over where your investments are placed you can opt for a self select ISA. However, before investing it is important to bear in mind that the value of your investments can rise and fall and thus it is always advisable to seek professional advice.