Graham Doubtfire, Tax Partner, reminds us that on this day in 2013, the Treasury announced a change to financial legislation that continues to benefit experienced ISA investors.
The ISA was introduced over twenty years ago by Gordon Brown. At the time the maximum that you could invest (into a cash ISA) was £3,000 – over the years that has changed, and an individual now has an £20,000 allowance each year which can be invested in an ISA. Your ISA, which is free from Income Tax and Capital Gains Tax during your lifetime, forms part of your estate on death, so if you have a substantial investment portfolio your ISA could be exposed to Inheritance Tax which is charged at 40%.
Another milestone in the history of the ISA came about with the legislation change on 5 August 2013 which meant that if specific kinds of investments were held, that were not previously qualifying in ISAs, then these can also be exempt from Inheritance Tax. This is in addition to the existing Income Tax and Capital Gains Tax benefits.
Whilst these investments are not appropriate for all clients many of them do utilise these investments on part or all of their ISAs to make them exempt from Inheritance Tax.
The current variety of ISA options, coupled with the accessibility, flexibility and tax efficiencies they can bring has made them a popular investment vehicle in recent years. However it’s fair to say that ISAs have also become more complex; there are a multitude of rules, terms and conditions, and it is important to understand these before you make your decision as to which one to choose.