MONEY MATTERS: Your fortune awaits!

With RAY L BEST

How can you create a big fortune? The answer: Start with a small fortune, and work at it. How small? Let’s take an extreme example of £1. There are two ways you can invest the £1; the first way is that you invest free of tax and the second way you pay tax at 20% annually on any gains.

If the investment term was 20 years, and you were able to grow your investment so that it doubled your money every year, how much do you think you would have made at the end of 20 years? The answer, if free of tax, is £1,048,576, but by paying tax you would only make £127,482.36.

That is the astonishing difference you can make by investing tax-free, therein lies the power of ISAs, which are the simply the best savings idea of all time.

If you have any savings at all, you should be investing in Individual Savings Accounts (or ISAs), because of their attractive tax advantages for savers, providing tax-free income and capital growth.

To have an ISA you must be a UK resident, for a cash ISA you need to be 16-years-old. If you are aged 18, you can have a stocks and shares ISA, Lifetime ISA (if opened under 40) or Innovative Finance ISA.

To open a Junior ISA, you must be the parent or legal guardian if your child is under 16. If they’re 16 or over, the child can open one themselves.

As there are tax advantages in subscribing to ISAs, the amount you can pay in is limited to the stated ISA annual allowance for the tax year, this year it’s £20,000 per individual.

The best way to manage your ISAs effectively is to combine them; ending up with numerous cash ISA accounts with different companies over several tax years is not a good idea.

We would encourage you to hold all your cash ISAs with one company, you can then seek the best rate of interest for your combined cash ISAs.

It also makes sense to combine all your stocks and shares ISAs, in order to manage them effectively. One way of doing so is to transfer them into a fund supermarket platform or ‘wrap’.

These administrative platforms give investors access to a wide range of funds from different fund managers, including top performing funds.

One recent innovation is the Flexible ISA, this is not a new ISA, but an option which allows you to “borrow” almost all of the funds in your ISA; if you pay the funds back within the same tax year, you retain all of the tax advantages of the ISA. One of our clients recently used this option to provide a bridging loan for his son to buy a house overseas!

I started the article with the extreme example of £1 and doubling your money every year, just to prove a point.

A combination of good growth and tax-free returns could make you that fortune after all! Unleash the power of ISA’s!

MORE ON MONEY MATTERS NEXT WEEK

Past performance is not necessarily an indication of future returns, and future performance is not guaranteed.

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