ISAs celebrate their 20th birthday in April

With the arrival of the new tax year closely approaching on 6th April, it’s time to consider your Individual Savings Accounts (ISA) investments, which turn 20 years old in April.

Over the last 20 years, the maximum annual ISA contribution has risen from £7,000 per tax year to £20,000. If you managed to set aside the maximum each tax year since 1999/2000, you would now have placed over £205,000 into ISAs – and largely out of HMRC’s reach.

The relatively simple single investment option has also transformed over the years and there are now a variety of products available which cover everything from retirement planning (the Lifetime ISA) to children’s saving (the Junior ISA).

However, one aspect has been common throughout the ISA’s lifetime; new investment is concentrated at the end of the tax year. For example, in the 2017 calendar year, Investment Association data shows that net ISA investment in the second quarter was £1,421 million against a net total of £1,068 million for the entire year (the first and fourth quarter showed net outflows).

This means, if you are in that ‘leave-it-until-the-last moment’ majority, now is the time to start thinking about your 2018/19 ISA investment.

The benefits of ISAs

Whilst the value of ISAs has changed over the past 20 years, as successive Chancellors have altered the tax treatment of interest, dividends and capital gains, the main tax advantages remain the same.

• There is no UK income tax to pay on interest, whether from cash or fixed interest securities. With low interest rates and the personal savings allowance of up to £1,000, this benefit is less valuable than it once was.
• There is no UK tax to pay on dividends. This is a more valuable benefit now the dividend allowance is £2,000 and even basic rate taxpayers can face 7.5% dividend tax.
• There is no capital gains tax on profits.
• There is no personal reporting to HMRC.

One extra feature added in recent years is the ability to allow ISAs to be effectively transferred to a surviving spouse or civil partner on first death. However, ISAs ultimately remain liable to inheritance tax unless appropriate AIM-listed investments are chosen.

The value of your investment can go down as well as up and you may not get back the full amount invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as long-term investment and should fit in with your overall attitude to risk and financial circumstances.