Get rid of Maxi ISA

Corsair_2

Should I cash in my Nationwide Maxi ISA?

I took out a Maxi ISA for £7000 back in 2000 and it is currently worth £8500.

After speaking to the Nationwide Customer help team they tell me that the "Corporation Tax" rules changed a couple of years ago.

The maxi ISA is a FTSE100 tracker. Since the tax rules have changed, there is no longer any reinvestment of any gains into the original ISA as extra units.

Effectively my fund is frozen and can only mirror the performance of the FTSE100.I feel that the terms of the original investment vehicle have been altered to the detriment of the ISA and potential growth.

So the question is should I hang onto the ISA or would it be better to cash it in and use that capital to pay off some of my mortgage-taken out after the ISA was originally opened?

To date the original investment- although free of tax has made about 3% per annum. Up till now, the money would have been better saved in a current account and then used to offset the mortgage.

All advice will be greatfully received.

dunstonh

£7000 in a single fund is poor investing but typical of a bank/building society investment as they cannot portfolio plan.

The FTSE100 has been a poor performing index for well over a decade (partly in thanks to Gordon Brown). It isnt the ISA that is the problem but the way you have invested it. Despite the crash, a little more diversification could have seen you obtaining an average of 10% a year now.

To date the original investment- although free of tax has made about 3% per annum. Up till now, the money would have been better saved in a current account and then used to offset the mortgage.

You need to make a choice. Currently your understanding of investments is not strong. You either have to improve that knowledge or get someone who is authorised to make appropriate changes. Nationwide are not able to offer you that as they are tied reps. You invested prior to a crash and put all your eggs in one basket and picked the worst performing general stockmarket index in the western world. To get 3% a year average is not too bad in when you consider that.

in addition, based on your comments, its also probable that you are invested above your risk profile and that could have a lot to do with it as well.

I feel that the terms of the original investment vehicle have been altered to the detriment of the ISA and potential growth.

In what way? Nothing about the change in the taxation of dividends wasnt known prior to the launch of ISAs. In the scheme of things, it probably only accounts for about 0.1-0.2% a year on your fund. (assuming basic rate taxpayer).

you certainly need to do something but the choice is yours.

Corsair_2

Thanks for your input Dunstonh,

My original investment was part of a larger investment strategy so hopefully it does not appear as too many eggs in one basket in the grander scheme of things.

The tax situation from what the Nationwide told me changed in as much as the ability to reinvest dividends as extra units is now not there, which it was when I took out the ISA ,for the first couple of years. I presume that could not be forseen or they would not advise the ISA?

I agree I need to do something now. I have to weigh up whether I could get a better return by hanging onto the ISA for 3 more years- which was the original time frame for the investment, or to just pull the plug now and by offsetting my now very small mortgage, reap a better reward by not paying them so much each month. I tend to think this strategy may be the best. Would you agree?

Corsair_2

Also forgot to ask: my attitude to risk was low, do you think I could hold the Nationwide to task for giving me inappropriate advice?

I did ask the advisor at the time and he justified his advice by stating that at the end of the term I could always sue him for giving wrong advice.

This may have given me confidence in his advice, but thinking about it now, even if the original £7000 made say £7001 at the end of 10 years, he would still have made me money and fullfilled his remit.

dunstonh

The tax situation from what the Nationwide told me changed in as much as the ability to reinvest dividends as extra units is now not there, which it was when I took out the ISA ,for the first couple of years. I presume that could not be forseen or they would not advise the ISA?

I think you have spoken with a newbie at the Nationwide.

Dividends are still reinvested. Nothing changed there unless you asked for them to be paid out to you. The only changes were to the tax credit which took affect in 1999 and was fully removed in 2004. ISAs were introduced in 1999 and the tax credit dates (including the 2004 date) were known before ISAs were even launched.

Nothing negative has happened to ISAs since they were launched that was not known about before their launch.

I agree I need to do something now. I have to weigh up whether I could get a better return by hanging onto the ISA for 3 more years- which was the original time frame for the investment, or to just pull the plug now and by offsetting my now very small mortgage, reap a better reward by not paying them so much each month. I tend to think this strategy may be the best. Would you agree?

As its three years, I would go with reducing the mortgage. If it was 5+ years, I would stick with the ISA, albeit in a better spread of funds.

Also forgot to ask: my attitude to risk was low, do you think I could hold the Nationwide to task for giving me inappropriate advice?

On the crude 1-10 risk scale, a FTSE100 tracker is risk 7. Certainly not low risk. It is typically classified as medium/high. (the gap between medium at 5/6 and high at 9/10)

You could complaint but the interest rate, after tax, you would be offered to put it right is probably about the same or less than what you have made. Probably not worth the effort. Consider it a lesson in never using banks or building societies for financial advice.

Corsair_2

Yeup- I won't be using the Nationwide for such purposes again.
Suppose I will have to reduce the mortgage as you suggest.
If I complain I expect they will want me to maintain the ISA for the 10 year term, which could still result in losing out in real terms yet again.

Thanks very much for all your considered advice-much appreciated.