ISA Guide 2009

With interest rates and the investment world wrapped in a cloak of doom and gloom, there is one small, simple change you can make to your finances to save yourself some money. By wrapping your savings and investments up in an individual savings account (Isa), you could save yourself income tax on interest earned on cash savings, and income and capital gains tax on investments.

Collectively, people in the UK waste a staggering £263 million in tax by not sheltering their money in this way. The figure from professional advice website Unbiased.co.uk emphasises how few people make the most of their Isa allowance each year.

As a reminder, you can put £3,600 into a cash Isa every year, and £3,600 into a stocks and shares one – or £7,200 into a stocks and shares Isa if you don’t have a cash Isa.

If you and your spouse haven’t used your allowance this tax year (which ends on 5 April), then over the next month or so you can together put in £28,800, using up this year and next year’s allowances. That’s a lot of money right there that you can squirrel away from the chancellor’s coffers.

However, most of you will be well-versed on the tax merits of an Isa. Instead, you might be worrying about the anaemic-looking interest rates on cash Isas.

This guide takes you through some of the best rates that are still available. While they are considerably lower than rates offered just 12 months ago, it still makes sense to put cash in an Isa rather than a savings account. That way, the money is already in a tax-efficient bubble for when interest rates finally head north again.
But one strategy to seriously consider in the upcoming tax year is to open a stocks and shares Isa, or make your existing one work harder.

The stock markets may look more treacherous than the epic snowfalls we saw across Britain at the start of February, but really it is a great time to pick up a bargain.

In fact, investment house Baring Asset Management calls the start of 2009 the best time for investment opportunities in the past decade. The firm accepts there is a ‘savage recession’, but it argues that the markets factor this into their prices. It even claims that ‘stock markets are set up for a series of saw-toothed trading rallies’.

In this supplement, we give you plenty of ideas to help spruce up an existing stocks and shares Isa, or how to start one off. From introducing investment trusts, to a sprinkling of Asian exposure, to the best shares to hold in a recession, it’s all here.

We also look at how to get that all-important income from your Isa, and how Isas shape up compared to other tax-efficient vehicles.

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