A few days before the end of every tax year, the financial press kicks off the final stage of its annual, and increasingly frantic, Individual Savings Account (Isa) campaign. This is when you will see the headlines screaming “last-minute Isa picks” – the detailed lists of which prompt providers to keep their phone lines open until midnight on 5 April. Then, the very next day, it starts all over again – the first Isa headline of the year usually being something along the lines of “what to do if you’ve missed the Isa deadline”.
For most of us, there’s no Isa deadline. Few people have tens of thousands of pounds sitting around in cash waiting to be put into tax-efficient vehicles. Instead, we pay it in as it comes in, or via a monthly direct debit. So all that matters is that on 6 April a new allowance starts and we carry on as before.
That said, I’m often asked by lucky people who can save more than the Isa allowance, how to do so in a relatively tax-efficient, simple, accessible way. The answer, as far as I can see, is that they can’t.
In the absence of NS&I inflation-linked bonds, everything is just too complicated, inaccessible or dangerous. Pensions are inflexible and subject to constant change. Venture capital trusts require you to tie your money up in very risky businesses for five years to get your tax breaks. And premium bonds are more a hobby than an investment.
At this point I suspect many independent financial advisers might mention offshore investment bonds. But by ‘dangerous’, I don’t just mean in terms of the permanent loss of capital, I mean in terms of potential changes to the tax system.
Wherever there is a tax advantage, there is an incentive for a fiscally stressed government to remove it. Isas don’t come with this danger. People don’t much notice the removal of complex and niche tax allowances. But Isas are both simple and mass-owned (23 million people have them): I can’t imagine a politician brave enough to remove any of their tax breaks retrospectively.
Not so with offshore investment bonds. These are complicated and come with such substantial tax breaks that I’m at a loss to explain how they came into being in the first place. I’m certain they won’t survive intact for long: they might come under George Osborne’s ‘tycoon tax’ (that limits tax relief to £50,000 or 25% of income), but even if they don’t, they won’t go unnoticed forever.
If you look for certainty, you might want to stay clear of bonds too. If you want a simple way to protect your money from tax, use this year’s Isa allowance now rather than wait for us to provide you with a last-minute Isa list in 11-and-a-half months’ time.