Over 50s could double investment returns with ISA

With over 50s now able to benefit from the new, higher ISA investment limit, Fidelity International says those who take this option could increase their investment returns by age 65 by as much as 126% when compared to an investment held outside an ISA wrapper.

For example, if a 50 year old basic rate tax payer placed £10,200 into an-ISA wrapped UK corporate bond fund each tax year, assuming an annual interest return of 5.0% per annum, before charges, they could amass £231,106 by the time they reach age 65. The investment return of £78,106 would all be shielded from the taxman.

However, if they chose to invest the same sum in the same fund, held outside an ISA, tax deductions would mean the investment growth at age 65 would be a mere £59,410. This means that the ISA returns over 31% more and they keep an additional £18,696 that they would otherwise have to give to the taxman over the years.

A higher rate tax payer would benefit even more, keeping £35,706 from the taxman meaning the ISA returns 84% more. Those to be hit by the new 50% rate would see the ISA produce 126% more and keep an extra £43,628.

Just how much extra the investor will get back by sheltering savings in an ISA will depend upon the type of investment and their tax rate. Even with equity investments there can still be a big difference. All investors will save capital gains tax and that means an extra 22% boost if that tax would have been payable. Higher rate taxpayers get savings from dividend payments as well, giving a compound 33% boost.

Paul Kennedy, Director of tax wrapper & trust planning at Fidelity International, says, "I cannot put it more simply: if you have savings you must consider an ISA. If you pay tax an ISA should be the first place that any non-pensions savings go. I suspect that many people recognise an ISA to be tax-advantageous but few really understand just what that means and just how much money they could be throwing away. It doesn't really matter in what you are investing, the nature of the tax regime in the UK is that the taxman is often going to take a slice of your investment return. Use an ISA and he won't.

"If you are aged over 50, you now have the opportunity to contribute £10,200 this tax year. Putting it brutally, if you don't use this allowance and leave your investments or savings outside an ISA you're simply agreeing to give part of any investment return to the Government. And, as you can see from the figures, that could amount to throwing away a huge amount of money over the years. An ISA puts all the money back into your pocket and your pocket alone."