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Professional Renaissance Limited is a limited company registered in England under company number 6380089. Our registered office address is: The Business Store, 98-100 High Road, Rayleigh, Essex, SS6 7AE.

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Tax year end 2016

The Budget 2016

Tax dates 2016/17

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ISA Time

Wasted opportunity?

Annual subscriptions in the last tax year totalled just under £79 billion²; and the average individual subscription was £6,064. The average market value of ISAs reveals how those investing in Stocks & Shares ISAs typically make more of the opportunity. Savers who hold only Cash ISAs have total savings averaging £8,616, whereas those investing only in Stocks & Shares ISA have accumulated ISA pots worth an average of nearly £39,000.

Around 80% of all ISA subscriptions last tax year were deposited into Cash ISA’s. Over £240 billion- half the total amount saved into ISAs since their introduction- sits in Cash ISAs paying little or no return².

The average interest rate on Cash ISAs is currently just 0.85%³. At that rate, a basic-rate taxpayer depositing their full allowance in a Cash ISA would earn annual interest of just £129 and save themselves tax of £26. A higher-rate taxpayer would make a £52 saving.

False economy?

The introduction of the Personal Savings Allowance from April will allow basic-rate taxpayers to earn tax-free interest of up to £1000 on standard current and savings accounts. The allowance for higher-rate taxpayers will be £500. At the current average instant access rate of 0.48%, a basic-rate taxpayer could deposit over £208,000 in a regular savings account and receive all their interest tax-free. For higher-rate taxpayers the figure is just over £104,000.

If you can deposit cash in an instant access account earning tax-free interest, why would you need a Cash ISA? Of course, the advantage of a Cash ISA is that the interest will remain tax-free, whereas when interest rates rise the Personal Savings Allowance limit will be achieved with a lower level of savings. But with a rate rise this year looking increasingly unlikely, it may be many years before individuals need to use an ISA wrapper to shelter cash from tax. The primary role of cash is as a home for emergency funds. It seems unlikely that many people would need a larger emergency pot than they can now save tax-free in an instant access account.

Long-term role

A recent survey conducted by BlackRock explored the savings views and habits of 4,000 individuals in the UK. While it revealed an encouraging increase in the number of people saving for retirement, it also confirmed that Britain’s cash-centric savings culture remains a problem. Around two thirds of all personal savings and investments are held in cash, compared to an average of 12% invested in equities; and this is despite those surveyed acknowledging that the figure is too high.

Pension changes due to be introduced in April will see a reduction in the annual allowance for higher earners, and a lower lifetime allowance for pension savings. It is therefore anticipated that the flexibility offered by ISAs will see them used even more widely as part of a well-structured retirement planning strategy.

Saving regularly into a Stocks & Shares ISA is an ideal way to make the most of your allowance. It’s a tried and trusted way to help control risk over the longer term, and reduces the worry of investing at the wrong time by encouraging you to invest no matter what the market is doing. Steady, long-term investing is the best way to help absorb the unpredictable movement of markets.

The long-term benefits of ISAs were further enhanced by changes introduced last year, which enable spouses to inherit an additional ISA allowance equal to the value of their deceased partner’s ISAs, so preserving the tax benefits that would previously have been lost.

The tax benefits of an ISA can only be maximised by investing for the long term in assets that offer the scope for attractive levels of income and capital growth.

1. Investment Association, November 2015

 2. HMRC, August 2015

3. Bank of England, January 2016

4. BlackRock Investor Pulse Survey, December 2015

The favourable tax treatment of ISAs may be subject to changes in legislation in the future. An investment with St. James's Place will be directly linked to the funds you select and the value can therefore go down as well as up. You may get back less than you invested. An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

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