Behavioural finance has an increasingly central part in conversations about investment risk, since managing emotional responses plays a key role in maximising returns.
The 2014 Budget saw a major shake-up of the rules on Individual Savings Accounts, with the introduction of New ISAs representing nothing short of a revolution in how people can save.
The annual ISA limit was significantly raised and investors were given greater freedom over what they can invest in. Both these changes mean that looking after ISAs is an area where wealth managers are increasingly active. The larger sums of money involved and the attractions of stocks and shares investing amid low interest rates are ramping up the need for savers to take specialist advice and potentially use wealth management for ISAs.
Affluent individuals are likely to have ensured that they’ve been using their ISA allowance in full for many years now, since these wrappers have been around since 1999 (when they replaced Personal Equity Plans). But changes to the ISA rules which came into force on 1 July 2014 made them an even more attractive savings route – particularly since the lifetime pension contribution limit has been cut to £1.25 million. The changes may also mean it’s time for investors to take a fresh look at ISAs in light of their overall investments. You should definitely be thinking about taking advantage of the annual tax-free allowance going up by a quarter and your ability to move money between cash and stocks and shares wrappers far more easily.
These changes are very significant and could have a big impact on your long-term wealth. And, while ISAs are very much a mainstream savings product, obtaining professional investment advice is likely to pay significant dividends.
It may well be time for you to review and optimise your investments in light of the ISA shake-up. Many investors have accumulated a series of ISAs over the years which have been largely forgotten about and which certainly aren’t being managed strategically as part of an overall wealth plan.
ISAs are an increasingly important way to save for retirement. In fact, some have pointed out that investors could become an “ISA millionaire” in just thirty years – if, that is, they are strategic and disciplined about investing the maximum amount each year and reinvesting gains.
A good wealth manager will help you get a full overview of all your investments and how they are performing so they can be optimised going forward. A wealth manager may recommend consolidating your ISAs into one actively-managed portfolio in a bid to deliver better returns, for example. They might also suggest scheduling the transfer of assets into an ISA wrapper at the start of each tax year to avoid the typical rush to use up allowances before April. This is another example of how a professional wealth manager can take a weight off your mind.
Everyone has certain tax allowances, even children and non-tax payers. While ISAs are for the named account-holder only, couples can spread their savings across two individual accounts to maximise the amount they can shelter from the taxman.
You should take professional advice in relation to the tax liabilities on your estate, however. At present it is not possible to bequeath ISA assets free of tax since the money must be removed from the deceased’s account before passing to the beneficiary. Professional wealth management guidance will help you see all the long-term angles.
Those with children should also know that the ISA reforms raised the annual contribution limit for Junior ISAs to £4,000 from £3,840. This amount can be invested in any combination of cash or stocks and shares, but the latter is almost certain to outperform cash over the time it takes for your child to reach 18. There are two important points on JISAs, however: the money can’t be accessed until the account holder turns 18 and, once they do, the money passes fully into their control.
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