Pick your ISA

The property market is almost turning into dust because of the transition of buy-to-let into try-to-let. So if you have some money that you are ready to use for investment and want to put it somewhere racy compared to a deposit account, you should ask yourself first before making some commitments to your hard earned money. These expert recommendations are sure to help you decide smoothly and won’t make it too much of a burden for you.

Have you got the spare cash?

“Before you consider investing some of your hard-earned money in a stock market, the first thing that you must ask yourself is if you have sufficient liquid cash,” says Jonathan Lees, a senior wealth product manager working at Bradford & Bingley. “You simply wouldn’t want to cash in an equity ISA to pay your bill or meet any other unforeseen expenses.”

In addition to that, if you have lots of debts with some hefty interest rates, there’s no doubt that the money you’ll earn on your ISA will be bigger compared to the amount you’ll have to pay to keep the debts on so make sure that you clear it first.

Are you eligible?

“Before you even think on where to invest your money, you should check first if you’re qualified for an ISA,” Lee cautioned. The eligibility rules for the ISA are a bit complex, and it would be easy to break inadvertently.

Let’s start off with the easy one: you must be 18 years old or above to take out an equity ISA. Once you are satisfied with that condition, you should then get into the world of maxi and mini ISAs.

Having a maxi ISA will allow you to invest up to £7,000 allowance with just only one manager. The rules will let you invest up to £3,000 of this allowance in the manager’s cash ISA and extend up to £1,000 in their insurance ISA with any of the unused allowance eligible for the equity element.

As an alternative, you can acquire up to 3 mini ISAs – a cash one, an equity one, and an insurance one. Even though you can invest with a different manager for each element, you are still restricted to a maximum of £3,000 in cash, £3,000 in equities, and £1,000 in insurance.

You should note that you are not allowed to mix your maxis and minis, so if you have acquired an ISA for this tax year, you should know what type it is since it can affect how and where you invest any of those unused ISA allowances.

But if you have consumed your ISA allowance, you might as well consider the other types of investment like investing in an equity fund that is outside the ISA wrapper.

Is an ISA the best place to put your equity investment?

Even though that every time a tax year ends would mean that talks about investments are automatically focused on ISAs, any alterations to the ISA rules last April means that the tax advantages attached to this kind of investment are now fewer. According to Anna Bowes, an investment manager at Chase de Vere, the fund managers can never reclaim the 10% tax credit, the dividends on equity ISAs are then taxed in the same process as if it was held outside the ISA wrapper.

For those who are in a fixed-interest fund, the situation isn’t that bad or for anyone with at least 60% invested in fixed-interest securities like government gifts and corporate bonds, which pays a portion of interest. Any interest that you may receive within the ISA is still non-taxable. Bowes explains that you should go for a fixed rate interest due to the tax break. You should rather pursue an investment that suits your needs.

She also warns against looking at the end of the tax credit as a way to boycott the snub equity ISAs. An ISA will serve as your best protection from capital gains tax, and even though that the current stock market growth will make this a bit unlikely, you will still never know for sure.