Many Happy (Stockmarket) Returns!

jamesrooney Apr 6th, 2017

On 6th April 2017, the ISA as we currently know it will celebrate its 18th birthday, but just how much could investors have benefitted from its ‘childhood’?

The ISA was introduced on 6th April 1999 as replacement for both the PEP (Personal Equity Plan) and the TESSA (Tax Exempt Special Savings Account).

For the uninitiated, an ISA is simply a tax efficient ‘wrapper’ in which investments and/or cash can be held and allowed to grow free of income tax and capital gains tax.

At launch, the maximum amount that could be invested in an ISA was £7,000 per year. This annual allowance has increased sporadically over time, and for the 2017/18 tax year now sits at £20,000.

For many personal injury investors, one year’s contribution represents a very small proportion of the value of their award, and they may be forgiven for thinking that, tax advantages or not, they offer little benefit.

However, over time, the cumulative sums that could have been placed into ISAs, along with the cumulative and compound growth on these contributions, would now amount to a fairly handsome investment, even for a cautious investor.

As an example, if one had invested into the average fund from the IA Mixed Investment 20-60% Shares sector, the full annual allowance on 6th April in each year, from April 1999 to April 2016 inclusive (a total of £166,560), they would now have an ISA pot worth over a quarter of a million pounds, as the following illustrates:

In other words, simply by ensuring that the annual ISA allowance was used each year would have allowed an investor to enjoy capital growth of over £85,000, entirely tax-free.

Three cheers for ISAs!