The Investment Management Association (IMA) is calling on the government to raise the annual tax-free allowance in order to boost ISA uptake next year.
Self select ISAs allow you to invest up to £7,600 in the shares with all returns tax-free, and the remarkable performance of the stock market has helped spur demand for such products over the past decade.
However, with the recession now wreaking havoc with the economy, it’s important that the government find new ways to encourage Brits to set money aside each year.
IMA chief executive Richard Saunders believes hiking the ISA limit to £9,600 will be “a good start” and will also bring it in line with inflation.
A great product
"Ten years on, the ISA is still a great product - a straightforward, simple way to roll up savings and ultimately use them completely tax-free,” says Saunders.
“As IMA's statistics demonstrate, since 2004, stocks and shares ISAs have seen annual outflows following the healthy inflows of previous years.
“In part, this can no doubt be explained by the performance of the stock market over the last decade. But the time is also ripe to look for ways to rejuvenate the incentives to save in ISAs.
“A good start would be to raise the ISA allowance to £9600, a level which would restore its value taking account of inflation since its introduction."
Investors bullish despite volatility
Interestingly, a survey of Barclays Stockbrokers’ clients indicates that the ongoing turmoil in the global markets has not diminished demand for tax-free investments, with 94% planning to invest the same amount or more ISA next year.
It also found that many investors have resisted the temptation to cut and run as share prices tumbled, with share purchases making up almost two thirds (62.6%) of all client trades in 2009.
“While some investors will be feeling more cautious in the current environment, it is encouraging that the majority of investors are still confident of taking control of their investment decisions and are taking a longer term view,” says Barclays Stockbrokers investment head Barbara-Ann King.
“Indeed, this year we have seen an impressive 58% increase in the number of stock buy trades carried out by our clients compared to last year.”
“While cash rates remain at an all time low, equities and other investments have the potential to offer better returns over the longer term.”
Don’t miss this year’s allowance
With equity markets now priced at their lowest level for years, this could be an ideal time to try your hand at investing and increase the long term value of your nest egg.
And the tax-free incentives make self-select ISAs the best way of doing so. Take a look at our ISA best buys if you want to find a way around plummeting share prices.
Important risk warning - please read
The value of your investment and the income from it can go down as well as up and you may not get back a significant proportion of your investment. Past performance is not an indication of future performance. If you are in any doubt as to the suitability of an investment, you should seek independent financial advice.
