The Choice to use your hidden ISA allowance

The information provided in this article was accurate at the time of publishing and should be read in the context of the date it was published. Views in this article are those of the author alone and do not necessarily represent the view of Scottish Friendly.

In recent decades, Scottish Friendly has been at the vanguard of technological change. We were one of the first financial services organisations to launch a website back in 1997 and, more recently, our award-winning back office system has attracted leading financial organisations.

In 2012, our 150th anniversary year, we are once again leading the way with a revolution in online investing, a revolution that will transform the way in which you do business with us and maintain your investments.

A clear finding of our extensive market research is that people like ISAs, and they like them because they’re simple, tax-free and have no complicated tax rules that lock your hard-earned money away. They are instantly recognised by the vast majority of people in this country as (to borrow a New Labour phrase) the ‘people’s tax break’.

However, we noticed in our focus groups that people would only refer to their cash ISA allowance; few if any had heard of the other half of their ISA allowance.

The hidden half of your ISA allowance

While you only have one ISA allowance, it is essentially broken down into two parts. Your Cash ISA allowance (up to £5,640) and your Investment ISA* allowance (£11,280 minus any amount you have invested in a Cash ISA). So in other words if you max out your Cash ISA allowance, you can still invest another £5,640 and avoid tax.

Unfortunately, because it’s little known, only a small fraction of the population actually make use of this other half of their ISA allowance. Alas, this means that this part of the people’s tax break has become the preserve of the wealthy and well advised. Our new approach to ISAs aims to change all that.

Our new products will allow investors to use their Investment ISA in bite-sized chunks enabling them to have a range of individual plans all wrapped within their Investment ISA allowance.

There are two fantastic strands to this exciting new innovation. My Plans is your own personal Scottish Friendly online space where you’re in charge of your Scottish Friendly investments. Secondly, there’s My Choice (ISA), which is the first of Scottish Friendly’s products that you’ll be able to manage online.

My Choice (ISA)

Many of you already invest in a Scottish Friendly ISA, but My Choice (ISA) is different!

As well as allowing you to take out an ISA (by investing from as little as £10 a month), once you register with My Plans, you’ll be able to set up separate life policies within your ISA. This will allow you to plan, monitor and manage your personal and family’s finances.

This can make your Investment ISA* allowance that bit more manageable and useful.

So, for example, you can set up two policies, paying in £10 a month to each, for your two children. Maybe another for £15 a month (but increasing automatically by 5 per cent a year) for a rainy day or perhaps that big family holiday. You can even tag (or name) each policy with something meaningful – say, the kids’ names.

The My Choice (ISA) will come with a range of, initially, four funds from which you can choose. Select one, two or all four to include in your ISA investment. The funds include UK Active, UK Tracker, Government Bonds and International Company Bonds.

Over the years, we’ll be adding to this range. As well as being able to stop, start, increase and decrease your investment or even cash in, you will also be able to set a level of escalation so that the amount you contribute to your My Choice (ISA) increases on a regular basis by an amount that you set and which you can change when you wish.

Over the next 12 months, we’ll be launching a number of new ISA products, each with different investments and choices. All will be built to make it as easy as possible for you to exploit the other half of your ISA allowance, ensuring that the people’s tax break is enjoyed by everyone.

Remember that Scottish Friendly’s MyChoice ISA invests in the stock market, and that the value of shares can go down as well as up and so returns are not guaranteed.

*Legally this is known as your Stocks & Shares ISA Allowance but we use the phrase Investment ISA allowance to clarify that you don’t have to invest in the stock market but can choose Government bonds, property funds, corporate bonds or different investments.

Tax treatment depends on your individual circumstances and tax law may change in future.

No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting Advisers may charge for providing such advice and should confirm any cost beforehand.