Tax Efficient Investments  

Isas still a popular saving tool

This article is part of
Guide to year-end tax planning

Isas still a popular saving tool

Isas, launched in 1999, are a draw for savers.

HM Revenue & Customs’ Isa statistics published in 2019 show than more than 10m adult Isas were subscribed to in 2017-18.  

Junior Isas were also popular, with nearly a million accounts subscribed to in the same period. HMRC’s next report, with statistics for 2018-19, is due to be published in April this year. 

It is unsurprising that Isas have attracted so many investors, as Danny Wynn, head of proposition, growth and strategy – FundsNetwork at Fidelity, explains.

“Isas hold several appeals for investors, namely the ability to invest up to £20,000 without paying income tax or capital gains tax on the returns they generate.”

They have other advantages too, he adds: “While Isas are generally not as tax efficient as pensions for the majority, they do offer the benefit of instant access.

“Some consideration will likely be given to the ‘trade-off’ between accessibility and tax efficiency, which reduces as a client gets older and the period of time in which money is ‘locked away’ diminishes.

“Younger clients may prefer the idea of money they can access sooner if needed, in which case an Isa may be more appropriate.”

Key points

  • Isas are popular with savers
  • There is a whole range of Isas to choose from
  • There may be tweaks to Isas in the Budget

Alistair McQueen, head of savings and retirement at Aviva, takes a similar view: “When it comes to saving for our retirement, the pension is typically seen as the front-runner.

“And there is nearly 10 times more invested in private pensions than there is in Isas.

“But for those seeking a tax-efficient home for shorter-term investments, the Isa is still a great place to look.”

This is a particularly popular time for Isas, which feature prominently in the financial calendar in the first few months of the year.

If people do not use their Isa allowance before the end of the tax year, it cannot be rolled over, so there is a rush on at the moment, Mr McQueen points out.

“The first quarter of each year is referred to as ‘Isa season’ as millions of people seek to take advantage of Isa tax benefits before the end of the tax year.”

He does not expect any change this year, adding: “We can expect millions of people to follow this path in 2020.”

The Isa family

There are quite a few Isas to choose from nowadays, including the two that are perhaps the best-known versions (cash and stocks and shares) as well as the other main Isas offered, which include Innovative Finance Isas, Lifetime Isas and Junior Isas.

There have been some recent changes to the Isa family line-up, though.

For instance, Help-to-Buy Isas, targeted at first-time buyers, closed to new accounts on 30 November last year.