Hailing ISA independence day!

ISAs are approaching their 15th anniversary and, over the years, any tweaks to the wrapper have generally been disadvantageous. The 2014 Budget has finally reversed that trend and the ISA has become a formidable tool for savers and investors.

Thousands of pounds sheltered from the taxman

In the past 15 years, someone investing the maximum allowance in the average UK equity fund would have sheltered more than £100,000 worth of capital gains from the tax man. A cash ISA saver would have sheltered between £5,000 and £9,000 of interest made, depending on their tax status.

We now have the trust and the means to deal with the responsibility of retirement

Having firmly moved the burden of responsibility for providing for our own retirement onto the individual, it’s good that the government is finally trusting us to manage our savings and pensions.

From 1st July – ISA independence day (give or take a few days!) – the fully flexible new ISA will mean Britains will be able to properly manage their savings and investments throughout their lifetime.

Not only will they be able to shelter more of their savings, but they will be able to increase and decrease the risk at crucial times, such as when they approach retirement. Cash rates are miserable at the moment with inflation quietly, but effectively, eroding savings. However, as and when interest rates do get to around 5%, cash ISAs will be a decent option for those keen to reduce risk.

More investment choice

More choice for ISA investors by extending the eligibility to peer-to-peer loans (with details to be thrashed out) will be welcomed by more experienced investors but we should, at the same time, make sure that understanding of these new areas is increased as I personally think they will be too risky for more mainstream investors, so should therefore be approached with some caution.

By Sam Holder, operations director, Chelsea

Capital gains figures are sourced from FE Analytics. Calculations were made by investing the maximum allowance on 10th April each year into the average UK All Companies fund.

Cash ISA figures are sourced from Moneysupermarket.com

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Sam’s views are his own and do not constitute financial advice.