"Temporary" S&S ISA for 13/14 and 14/15 50% allowance

jimjames

I posted this in the other thread but I don't understand why you'd be prepared to take the very high risk that your money in a S&S ISA might have dropped in 3 months but not take the much lower risk that your money is there after 5 years or more.

Surely keeping it in a S&S ISA long term would make much more sense? Why not just use a S&S ISA anyway and put some low risk investments into it? Hopefully the new allowance may open some eyes about the potential options available rather than just sticking to cash.

Or be thankful that in the next tax year you can now put £15k into a cash ISA not the £5k that you'd originally expected.

Far better in my mind to get 5% on a taxable account than 1.5% on an ISA. Even after paying tax you are way better off, picking a tax free option purely because it is tax free just seems crazy.

bob_100

jimjames wrote: »

I posted this in the other thread but I don't understand why you'd be prepared to take the very high risk that your money in a S&S ISA might have dropped in 3 months but not take the much lower risk that your money is there after 5 years or more.

Surely keeping it in a S&S ISA long term would make much more sense? Why not just use a S&S ISA anyway and put some low risk investments into it? Hopefully the new allowance may open some eyes about the potential options available rather than just sticking to cash.

Or be thankful that in the next tax year you can now put £15k into a cash ISA not the £5k that you'd originally expected.

Far better in my mind to get 5% on a taxable account than 1.5% on an ISA. Even after paying tax you are way better off, picking a tax free option purely because it is tax free just seems crazy.

There is no risk if you just hold it as cash in the S&S ISA until July. Only reason this is being considered is that we can have 20k in the tax wrapper rather than 15k

Archi_Bald

bob_100 wrote: »

There is no risk if you just hold it as cash in the S&S ISA until July. Only reason this is being considered is that we can have 20k in the tax wrapper rather than 15k

Yes there is risk.

The S&S newbies who have asked about this "scheme" are quite obviously unaware of how S&S ISAs work and what charges they will incur for opening, keeping, exiting, and closing the S&S ISA.

Also, even if you did find a broker that does not currently levy an exit/closing/keeping charge, there are enough days between April 5 and July 1 for them to announce a change in terms and conditions that could result in you getting stung with unexpected charges.

They could also enforce the current rules (http://www.hmrc.gov.uk/isa/isa-guidance-notes.pdf) and return your money to you. I believe this risk is small, and it wouldn't materially disadvantage you.

But the risk of charges, including currently unannounced ones, is very real.

bob_100

Archi_Bald wrote: »

Yes there is risk.

The S&S newbies who have asked about this "scheme" are quite obviously unaware of how S&S ISAs work and what charges they will incur for opening, keeping, exiting, and closing the S&S ISA.

Also, even if you did find a broker that does not currently levy an exit/closing/keeping charge, there are enough days between April 5 and July 1 for them to announce a change in terms and conditions that could result in you getting stung with unexpected charges.

They could also enforce the current rules (http://www.hmrc.gov.uk/isa/isa-guidance-notes.pdf) and return your money to you. I believe this risk is small, and it wouldn't materially disadvantage you.

But the risk of charges, including currently unannounced ones, is very real.

I doubt that will happen seeing as many funds use no exit fees/low fees as a selling point. Even if they do propose fees which you do not expect, they will give you notice in which you will have time to immediately transfer the money into your current account and not incur these "extra" fees

Archi_Bald

OK, I rest my case and wait for the posts in July, or even after July, screaming blue murder about the charges people have to pay, or had subtracted from their deposits.

jimjames

bob_100 wrote: »

I doubt that will happen seeing as many funds use no exit fees/low fees as a selling point. Even if they do propose fees which you do not expect, they will give you notice in which you will have time to immediately transfer the money into your current account and not incur these "extra" fees

Ok, let's assume you realise the difference between fund fees and platform fees and decide to go ahead with this.

My question is - what is the point? There seems to be an obsession with having something tax free regardless of whether it is the best return or not.

You'll get 0% interest for 4 months, potentially £25 closure fees. And all to earn 2% tax free when you can get 5% taxed. Surely this is a classic case of the tail wagging the dog

http://www.evansmockler.co.uk/personal/planning-aspects/tax-planning-dont-let-tail-wag-dog

Archi_Bald wrote: »

OK, I rest my case and wait for the posts in July, or even after July, screaming blue murder about the charges people have to pay, or had subtracted from their deposits.

Probably much the same whining that accompanied the Royal Mail sale from people who had opted to buy the shares via their entire ISA allowance but only got the basic allocation moaning that they didn't want the risk of buying shares. So why did they put all their money in a S&S ISA!!

bob_100

jimjames wrote: »

Ok, let's assume you realise the difference between fund fees and platform fees and decide to go ahead with this.

My question is - what is the point? There seems to be an obsession with having something tax free regardless of whether it is the best return or not.

You'll get 0% interest for 4 months, potentially £25 closure fees. And all to earn 2% tax free when you can get 5% taxed. Surely this is a classic case of the tail wagging the dog

But you are thinking short term. I'm thinking long term. If i get 1.6% per annum (best easy access right now) based on the £5780, that will give me £92 this year. However when interest rates do rise in the coming years (hopefully going up the previous heights of 6%). The £5780 extra i can invest now will give me an extra £350 a year.

Even if for 4 months i miss out on interest that works out as £30 (based on 1.6% above), hardly much.

For short term i understand your argument, but for longer terms the gains will be much greater.

intalex

I totally agree with Bob on this - the addition of an extra £5760 to the tax-free wrapper surely has some value to many individuals.

For me, I would say it's worth up to a £50 up-front cost including the opportunity cost on interest lost over 3 months.

Besides, which bank today gives a 5% rate on £5760?

jimjames

bob_100 wrote: »

But you are thinking short term. I'm thinking long term. If i get 1.6% per annum (best easy access right now) based on the £5780, that will give me £92 this year. However when interest rates do rise in the coming years (hopefully going up the previous heights of 6%). The £5780 extra i can invest now will give me an extra £350 a year.

Even if for 4 months i miss out on interest that works out as £30 (based on 1.6% above), hardly much.

For short term i understand your argument, but for longer terms the gains will be much greater.

But surely if the limit is now £15k compared to £5k that it was before then it makes even more sense to maximise your return now rather than some potential return at some future date as you can get an extra £10k (£20k as a couple) into cash ISAs each year.

You have no way of knowing when interest rates may increase and actually be better inside an ISA - it could be 5 or 10 years away, we just don't know. That to me seems a big risk to take and you seem to be focused on the tax break not the best return even long term especially when it is only £5k that is easily absorbed via the proper route in future.

jimjames

intalex wrote: »

I totally agree with Bob on this - the addition of an extra £5760 to the tax-free wrapper surely has some value to many individuals.

For me, I would say it's worth up to a £50 up-front cost including the opportunity cost on interest lost over 3 months.

Besides, which bank today gives a 5% rate on £5760?

As a Moneysaving site I find it incredible that you're prepared to pay out £50 and lose interest purely to get a tax wrapper than pays less interest than outside when we have no idea when rates will rise again.

5% is available with Nationwide & TSB. Personally I'd prefer to pay tax on 5% than get 1.6% tax free, George Osborne must love me:)