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MSE News: Cash Isas or shares Isas - what's best?
Former_MSE_Guy
Posts: 1,650 Forumite
This is the discussion thread for the following MSE News Story:
"Isas are all the rage at the start of the financial year but what are the tax breaks and which type is best? ..."
"Isas are all the rage at the start of the financial year but what are the tax breaks and which type is best? ..."
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Comments
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There's no tax on interest earned - in S&S bit.
You might want to clarify that any cash interest earnt inside S&S ISA is taxed as normal0 -
To use this article well, read this:
'The key is your attitude to risk. Martin Lewis, MoneySavingExpert.com creator, explains: "Don't let the tax tail wag the dog. First, consider whether you want to put your money in a safe cash Isa or into stocks and shares where you hope for greater return but are willing to take a risk that you may lose money.'
Then ignore the rest, which contains bad jokes like:
"So unless you make a blockbuster profit, it's unlikely you'll pay CGT on smaller sums at present. If that's you, assuming your cash grows by the same margin as any investment, it would be best to put as much of your money in a cash Isa where you're guaranteed to save on tax."
The story needs some major reworking. I'll edit later with something more sensible to use as a guide.0 -
Reserved for future use, there's so much that may need to be addressed that one post may not be sufficient.0
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It is wrong to suggest that basic rate taxpayers dont get much from S&S ISAs. There are also a few other points.
1 - the compound effect of using ISA allowances yearly means that they could well find that CGT does become an issue. Many basic rate investors now have hundreds of thousands of pounds in ISAs. If they were not in ISAs then CGT would be an issue
2 - Income generated within an S&S ISA does not get added to your income for tax purposes. So, this could prevent a basic rate taxpayer becoming a higher rate taxpayer in future. It can also prevent non taxpayers becoming tax payers.
3 - Over 65s have an age allowance reduction income figure to consider. Any income that exceeds the threshold except that generated within ISAs (and investment bonds and a couple of other areas) does not go towards their total income and therefore they can avoid having their age allowance reduced.
4 - Cash ISAs are not risk free. They have no investment risk but they are subject to provider risk, shortfall risk and inflation risk. i.e. someone using a cash ISA for long term retirement planning is actually running a potentially higher risk than someone using a spread of investment assets. (as well as needing to pay nearly 3 times as much because of shortfall risk and inflation risk).
The article should mention that risk is not on/off. its a sliding scale. At the moment, the article gives the impression of risk being on/off.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
A cynic would suggest that S&S ISAs are being sidelined in the article because there is no income to be made by this site from paid for links.
I think that cynicism is a dangerous trait.0 -
I have been lending my savings on ZOPA for 2 years and getting a return of over 8% gross. Even after tax, this is far better than any ISA currently available.
ZOPA allows you to spread your risk by limiting your loans to as little as £10 per individual borrower and bad debt is less than 0.3% because rigorous credit checking and debt recovery systems are in place.
ZOPA is a co-operative organisation which avoids contact with risky, expensive, non- customer focused commercial banks.0 -
blackpear, it's easy to beat that in ISAs, and to do it with regulated investments with at least some FSCS protection instead of neither. Here are a few of the ways for those who demonstrate a willingness to put their capital at risk by using Zopa:
Newcastle Building Society PIBS paying between 10.5% and 10.75% at last check.
Trustnet has a list of unit trusts in yield order (yield is roughly the same as interest for this purpose, though it can include dividends and/or interest) and that includes:
12.21% Aegon High Yield Bond
11.31% Premier Optimum Income
10.43% Newton Global High Yield Bond
10.15% Marlborough High Yield Fixed Interest
The non-UK ones are interesting because their capital value will probably rise as the Pound drops and they won't be linked to UK interest rate moves or inflation very much.
There are many more at lower yields that might offer a more interesting combination of yield and capital growth. Something like Invesco Perpetual Income paying 4.02% but with good capital performance likely during the UK recovery that we're likely to see. Or Newton Higher Income paying 6.48% with decent capital growth prospects as well and a record of increasing its yield for many consecutive years.
All of these can be held in ISAs or pensions. A few percent of total investments in Zopa can still provide some useful diversification. Not prudent to go over 5% in any one investment vehicle that is not regulated for investment business, though.0
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