This year’s Budget also set out an enormous additional tax break for investors which has received much less mainstream press attention than the VAT reduction or cash for clunkers but could be more generous than either of those flagship schemes.
What is this enormous new tax break? No less than the good old Isa, and in the shape of a £63bn business opportunity for advisers.
From October 6, anyone who will be over the age of 50 by April 5, 2010 can invest £10,200 in their Isa – that is £3,000 more than previously. From April next year, all investors will enjoy the increased Isa limit.
The staggered launch undoubtedly complicates matters but it does not detract from the good news that this increased allowance brings.
It means, for example, that couples can now shelter more than £20,000 from the taxman each year and, for advisers, it means a bumper double Isa season and the chance to help many more clients make the most of their tax-advantaged investments.
The increased limit reinforces the position of the Isa as the first choice for investors looking to maximise their returns, which is a point often overlooked, maybe not by advisers, but certainly by many investors.
The higher limit is a handy hook for advisers to explain to their clients that when careful tax planning forms part of the investment decision-making process, the power of an Isa invariably overcomes alternative wrappers. For some investors, the impact of using an Isa when compared with the alternatives is simply stunning – one investor in the same investments using two different wrappers shows the Isa can return between 25 per cent and 100 per cent more to an investor’s pocket.
In some situations, the argument for the Isa over the alternatives is so strong that even clients who have no additional money to invest should review their existing arrangements, as a switch from one inefficient wrapper to an Isa can be very advantageous.
For example, an investor with £50,000 accumulated in equity growth funds could be £20,000 better off after 10 years of Isa investing than an identical person wrapping their funds in an offshore bond.
This is partly due to the compounding of the money that is available in an Isa to be reinvested rather than paid in tax. This is an incentive to act now rather than wait, as many investors do, until the end of the tax year.
The overwhelming message is that as many advisers as possible should soon be helping as many clients as possible to take advantage of the Isa opportunity.
But herein lies one of the problems the Chancellor created when deciding to offer the increased allowance initially to just one group of investors – because that group is fairly narrow, the individuals are potentially difficult to identify.
The ideal scenario is to interrogate your records to return a list of all clients above a certain age and with all, or some, of their Isa allowance available for this tax year.
For some advisers, it will be a relief to know that some platforms will do this for you in a matter of mouse-clicks and, with the detailed list in your hand, you effectively have a mini-marketing campaign and can specifically target those clients for whom the increased limit means the most.
However the opportunity is taken, it is a welcome point for everyone that the increased allowance means that finally some of the stellar financial stimulus has been returned to the hands of the taxpayer.