ISAs and Investments

ISA
One of the most popular investment routes amongst Contractors is an Individual Savings Account (ISA) because of its significant tax breaks and flexibility. There are a number of key benefits for an ISA investment:

You can invest up to £7,200 (£10,200 per year if you are aged 50 and over and for everyone from April 2010) each year into an ISA account
There are a wide range of ISAs to choose from so you can find the best solution to your needs
ISAs offer a flexible investment option that is suitable for medium and long term investments and with most you can draw out your savings at any time

Make the most of your savings
With HMRC’s continuing efforts to remove the tax breaks available to Contractors, now more than ever it is important for you to take advantage of the few remaining options available.

In the 2009 Budget, it was announced that from the 6th April 2010 the ISA allowance will increase to £10,200. For those investors who will be 50 or over on 5th April 2010, you can use up to the current £7,200 allowance for now. But you can also top up with an extra £3,000 after the 6th October 2009 as the new allowance will apply to you earlier and you can exploit the higher limit for 2009/10 too. ISA investors can deposit a maximum of 50% of the allowable portion in a cash based ISA, 100% in an equity (stock market) based ISA or a mixture of both.

Equity ISA
Investing in an equity ISA is one of the most popular options and stock market based investments historically offer the best returns as long as you can accept that your funds may fluctuate in value. It is often best to opt for a term of five years or more so that your savings have a chance to grow and hopefully ride out any dips in the stock market.
You have the option to invest in a lump sum however it is recommended that you use monthly contributions to spread the risk of market fluctuations and avoid the end of tax year rush.

Cash ISA
For investors with a low risk tolerance or those that need to have access to their savings in the short term, a cash ISA would probably be more suitable as savings can be accessed instantly. With a cash ISA you should benefit from a higher interest rate than you would gain in a High Street savings account because banks view ISA investments as a longer-term commitment and reward this with extra interest.

Protected ISA
Offering a compromise between the cash and equity ISAs, a protected ISA tracks the stock market but it carries a protection policy for the underlying value of the fund. This allows Contractors to benefit from the potential for growth in an equity ISA with the security of a cash ISA.

Pension or ISA?
Ideally both if affordable, as the pension offers substantial up-front tax breaks whilst the ISA offers accessibility. This ability to access your savings at any time with an ISA carries dangers as you are more likely to take money out leaving no long term nest egg. The pension cannot be accessed until you are 50 (55 from April 2010) which ensures you will have a pot for your retirement.

ContractorFinancials
Contractor Financials are Independent Financial Advisors specialising in offering tailored financial solutions to contractors and freelancers, you can find out more about the services offered by ContractorFinancials by clicking here http://www.contractorfinancials.com

Financial advice is given by ContractorFinancials, which is a trading name of Contractor Financials Ltd and is regulated and authorised by the Financial Services Authority.

The value of investments may rise as well as fall and past performance is not a guide to future returns.

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