How to help clients make sense of Isas

This article is part of
Guide to getting tax planning done early

"I don't have any clients enquire about the IFISA; I'm all for encouraging investment in small businesses but investors do not realise they will not be covered by the Financial Services Compensation Scheme (FSCS) if they invest in these," Mr Morris adds.

Generous allowances

Since launch, the annual subscription to Isas has risen significantly, from £7,000 for stocks and shares, and £3,000 for cash in 1999, to £20,000 regardless of Isa type from 2017 to 2018 tax year onwards.

While boosting the Isa allowance to a generous £20,000 is a boon for some investors, for many of those starting out on the savings journey, it simply is not tenable for them to maximise their Isa allowance each year.

It is hard to imagine a millennial earning the average £26,500 wage in the UK (according to Office for National Statistics data) being able to set aside £20,000 of that in a tax year, but for those who are earning enough to put aside, the rule of thumb has been to boost workplace pension first, then maximise Isa allowances.

And Isas have proved exceptionally popular, no doubt driven by the ever-escalating annual allowances. Figures from HM Revenue & Customs reveals that in 2017, £62bn was put into adult Isas and £858m was put into junior Isas.

However, too much of this seems to be stuck in poor-performing cash.

Paul Latham, managing director of Octopus Investments, says: "It seems like Britons have an uneasy relationship with their Isas.

"Understanding the full suite of Isa options out there has arguably never been more important. Beyond cash and stocks and shares, alternative options like the IFISA could prove helpful for those clients who want the potential of attractive returns outside of equities."

Mr Latham believes: "People should view an Isa for what it is – a tax wrapper under which they can hold a range of investments, whether that be cash and stock and shares, as well as VCT and P2P products."

Quality and quantity

According to Luke Davis, chief executive and founder of private investment house IW Capital, it's not just the choice - it's the quality of that choice.

He says: "The main issue affecting the Isa market at the moment is one of quality, alongside quantity. With a number of products offering 0.5 per cent to 1.5 per cent in interest rates – the money might as well be sat in your savings account – the scale of what’s on offer has reduced market competitiveness significantly.

"The crux of the problem is that many Isas currently benefit the intermediaries and providers much more than they benefit the savers. The inefficiency must be corrected or savers will vote with their wallets and go elsewhere."