Higher ISA allowance boosts sales
Investing in stocks and shares individual savings accounts has rocketed since the allowance for the over-50s was increased a year ago.
Inflows into the ISAs have averaged more than £400 million a month since last October and half of investors say they would put more money away if ISA allowances were raised further.
The figures from the Investment Management Association show a renewed enthusiasm for investing in stocks and shares ISAs from people of all ages and lifestyles.
The ISA allowance was raised from £7,200 to £10,200 last year for the over-50s and in October, ISA net sales were the highest since their launch in 1999. Since October, sales have averaged £400 million each month, more than double the amount before the increase.
The ISA allowance rose to £10,200 in April this year for the under-50s and results from that month were the highest since 2001.
IMA research shows that one in three investors would invest more in long-term savings if incentives remained consistent and 44% said they would invest more if there was a lifetime tax-free allowance on Isas. Many people also said they would prefer greater flexibility to move money in and out of pensions savings.
Richard Saunders, chief executive of the IMA, comments: "Our research shows people are positive about incentives to save and the IMA figures back this up with ISA sales at the highest level for many years. There is a good chance that 2010 could be the best year ever for Isas."
It is unclear whether the Isa allowance will feature in the government's spending review on 20 October, and whether it will be reduced or frozen to help save the Treasury money. The allowance is currently set to increase in line with inflation each year, from next year.
Adrian Lowcock, senior investment adviser at Bestinvest, says if the government did cut the Isa tax incentives, it would be taking "more than a few steps backwards".
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).