Over 50s Can Use Isas To Keep An Extra £43,000
By Alison Steed
ANYONE over 50 could keep an extra £43,000 away from the taxman by the time their reach 65 by maximising their individual savings account (Isa) allowance, according to investment house Fidelity Investments.
The raised Isa limit for the over 50s, from £7,200 to £10,200 means they can shelter more than ever before, generating tax savings on interest, capital gains and dividend payments.
Fidelity has calculated that by using an Isa to invest £10,200 each tax year, anyone aged 50 now could have amassed £231,106 by the time they reach 65, assuming a return of 5 per cent a year in a corporate bond fund. That is 126 per cent more than you would have had if the investment was held outside the Isa – a return of £78,106 that would be shielded from the taxman.
Paul Kennedy of Fidelity International, said: “If they chose to invest the same sum in the same fund, held outside an Isa, tax deductions would mean the investment growth at age 65 would be a mere £59,410. This means that the Isa returns over 31 per cent more and they keep an additional £18,696 that they would otherwise have to give to the taxman over the years.
“A higher rate tax payer would benefit even more, keeping £35,706 from the taxman meaning the Isa returns 84 per cent more. Those to be hit by the new 50 per cent rate would see the Isa produce 126 per cent more and keep an extra £43,628.”
Just how much extra the investor will get back by sheltering savings in an Isa will depend upon the type of investment and their tax rate. Even with equity investments there can still be a big difference. All investors will save capital gains tax and that means an extra 22 per cent boost if that tax would have been payable. Higher rate taxpayers get savings from dividend payments as well, giving a compound 33 per cent boost.
Mr Kennedy added: “"I cannot put it more simply: if you have savings you must consider an Isa. If you pay tax an Isa should be the first place that any non-pensions savings go. I suspect that many people recognise an Isa to be tax-advantageous but few really understand just what that means and just how much money they could be throwing away. It doesn't really matter in what you are investing, the nature of the tax regime in the UK is that the taxman is often going to take a slice of your investment return. Use an Isa and he won't.
"If you are aged over 50, you now have the opportunity to contribute £10,200 this tax year. Putting it brutally, if you don't use this allowance and leave your investments or savings outside an Isa you're simply agreeing to give part of any investment return to the Government. And, as you can see from the figures, that could amount to throwing away a huge amount of money over the years. An Isa puts all the money back into your pocket and your pocket alone."
