Maximising tax benefits within an ISA

As we are now into the new tax year, I would like to give three brief observations about Individual Savings Accounts (ISAs) and their tax benefits.

Firstly, it’s an obvious thing to say, but the earlier in the tax year a client uses their ISA allowance, the more benefit there will be. If the client has assets in a General Investment Account, for example, it follows that the sooner these assets are moved across to an ISA, the sooner the tax benefits will begin. And, depending on whether your investment proposition makes this possible or not, using the ISA to wrap those assets that pay the most tax in an unwrapped form makes sense too. So, consideration should be given to the types of assets and the returns they generate – so bond and equity assets, etc. – when deciding on which assets to move across.

Of course, markets have been rather volatile of late. However, wherever possible, ISA allowances should be used even in uncertain times. Clearly, we’re experiencing a cost-of-living crisis at the moment and not everyone will have the money. However, if a client does have savings and they are worried about investing in the markets at present, then there are a number of alternatives open to them – and not just Cash ISAs down at the local building society. Investment platforms offer options too, such as cash and money market funds that can be held alongside the client’s current investment strategy.

One final point is that the ISA allowance is very valuable but it’s also a finite allowance. Given this point, does it therefore always make sense to take fee payments from a client’s ISA when this reduces the value of assets held within a tax-free environment? It has long been considered that funding fees from a pension makes sense as tax relief is received on the money paid in. However, fees taken from a pension account can only be equivalent for the advice given on the pension from where the fee is taken. Any fees taken in excess of this amount would be deemed as an unauthorised payment.

When considering fees for advice given on an ISA arrangement, should we take the fees from outside the wrapper instead? Again, there are other options available, such as paying the fees for the ISA from the client’s General Investment Account or a cash account sitting alongside it.