Interest only borrowers urged to use their ISA allowance
Equity ISA's remain one of the most tax efficient ways for interest-only borrowers to build capital over the long term.
With 3 months to go until the tax deadline, TQ Invest is urging borrowers to make the most of this current year's annual allowance.
Nigel Walker of TQ Invest says; "It is madness for interest-only mortgage borrowers to not make the most of their ISA allowance, as it is one of the few tax havens the Inland Revenue offers to savers and investors. Those who are using other types of accounts to build their capital could be giving away money to the Inland Revenue when they don't have to."
As with all tax matters, making sure you are making the most of allowances available is your own responsibility, so TQ Invest has come up with their top tips on how interest-only borrowers can make the most of their ISA.
Top tips for interest only mortgage borrowers considering using their ISA
1. Don't underestimate the value of your ISA allowance. Any interest or growth paid on your Isa is tax free, which means unlike with any other account, the tax man will not take a cut.
2. You get a new Isa allowance each year and can save up to a maximum of £5,100 a year in cash savings and £5,100 in equities with anyone provider; alternatively you can invest up to £10,200 in just equities.
3. If you are saving to repay the balance owed on an interest only mortgage and the deadline date is over ten years away, then consider using your ISA allowance to invest into equities rather than cash. Over the long term, investments linked to the stock market will usually outperform cash savings and with over half of UK savings accounts currently paying less than 0.5% in interest, an equity ISA is likely to fare better.
4. If you are not a confident investor, don't jump in at the deep end. There are lots of funds you can choose from ranging from the cautious to the very racy, however if you are new to investing consider a readymade portfolio such as TQ Invest's ‘Six of the Best' or take independent financial advice. (Model portfolios are not 'personal recommendations'- that is, they might not necessarily be suitable for you and your personal circumstances).
5. Don't bury your head in the sand if you think you may be in negative equity. The average house price peaked in 2007 at £182,000, by the end of 2011 it had fallen to £162,763 trapping some homeowners in the price fall. If you intend to keep your property, then you may be able to weather the storm of falling markets, however savings your way out of the current price difference is the most effective way of protecting yourself.
6. Buy your equity ISA through a discount broker and avoid paying the fund manager's initial charges. Discount brokers use their size and buying power to negotiate these charges on behalf of their client, with TQ Invest this usually means that there is little or no initial charge to pay, saving investors up to £560 on a £10,200 investment.
7. You don't have to leave your investment locked away forever. The beauty of an equity ISA is that whilst you are investing for the long term, your money is still accessible. You can access your investment whenever you choose, so if your mortgage provider allows, you could to pay off lump sums of your loan along the way.
8. Start saving, it is that simple. You can save from as little as £50 a month into an equity ISA and create a viable route to repaying the capital owed at the end of your mortgage term.
For more information about investing with TQ Invest, visit tqinvest.co.uk.