ISAs...Why the rush?

Tuesday, 30th March 2010 22:07 - by Resident IFA

This time last year, the FTSE100 stood at the 4,000 mark or thereabouts. Today (31.3.10), it closed at 5,672. The 1,672-odd point difference represents a rise greater than 40%. An extreme period of bounce-back in the markets, I contend, but you might be a bit miffed if you had sat considering a FTSE Tracker ISA (Individual Savings Account) on April 6th 2009...but did nothing about it. I am sure that there have been periods of time where the polar opposite example could be cited, but I still pose the question ‘Why do investors rush into (Investment/Equity) ISAs at the end of each tax year?’ Granted, it could be that they happened upon money during the tax year i.e. bonus, inheritance, etc. but, more often than not, the money was available already. ISAs have the same dual benefits – no income or capital gains tax (CGT) – all year round. I think the answer lies in a combination of marketing and human nature. Marketing, in that the big fund management companies have conditioned us to participate in ‘ISA season’, directing their advertising budgets accordingly. I can’t move for ISA adverts at the moment, but perhaps that is natural awareness, being an IFA (Independent Financial Adviser). Human nature plays a part in that we tend to react to, and work to, deadlines. April 5th is a well-known date, being the end of the tax year. It could be a conscious decision to put things off until the last minute or a result of our fraught lives – ‘Oh no, where did that year go? I must sort out my ISA’. I would hazard a guess, not having figures to hand, that Cash ISA contributions are not left so late, the ‘glamorous’ and heavily-funded world of the Investment ISA being a very different animal. Whatever the reason, enjoy the tax breaks on Pensions and ISAs when you have the resources available to do so. Even better than ISAs, Pensions attract tax relief on contributions - although you have to wait until age 55 to see any benefits...75% of which are then potentially taxable. Allowances are £7,200 for Investment ISAs (minus Cash ISA contributions), although higher at £10,200 for those aged 50 or over. You can double this or more (everyone has £10,200 allowance in the 2010/2011 tax year) by looking at next year’s ISA promptly. A little known fact is that quite a few ISA providers will be taking applications for the next tax year’s ISA already. The clock is ticking...you have 6 days after today. Happy investing!