MedEconomics: ISAs are flexible and tax-efficient schemes

Individual savings accounts have proved to be ideal for GPs' financial circumstances.

Individual savings accounts (ISAs) suit many GPs due to their financial circumstances and the tax breaks offered.

If you want to make full use of your £7,000 ISA allowance for this tax year ending on 5 April, it is time to hurry up.

Balanced approach

As part of a balanced investment approach, ISAs stand shoulder to shoulder with contributions to pension schemes. Both merit consideration but for differing reasons.

A pension is more tax-efficient but less flexible than an ISA. Investing in both pensions and ISAs combines the potential for longer-term cash and income with short- to medium- term tax efficiency and access.

If you have been used to investing the maximum each year with the same provider, it might be wise to look at where you are investing and how much is exposed to particular fund managers and market sectors.

Certain ISAs come with built-in diversity as many providers now use ISAs as a gateway to access external fund managers that in some cases give investors hundreds of options to choose from. For GPs wishing to invest and not worry about selection issues, favourite ISA fund choices are managed funds and index tracker funds.

With the former, the fund's managers actively buy and sell the fund's investment, while the latter type tracks the rises and falls in a stock market index like the FTSE-100.

If you are interested in property, this has just recently become an allowable asset for ISA funds to invest in.

Start by identifying your reason for investing. Is it for school fees, retirement or just because we should all save?

Also, consider the length of time you plan to invest for. For a fairly short period, a mini cash ISA (maximum £3,000 a year) is a sensible choice.

ISA choices

For a full list of the current best mini cash ISA rates, try www.moneyfacts.co.uk. For longer investment periods, you might wish to consider ISAs with greater growth potential.

However, you must be comfortable with a degree of risk, accepting that volatility comes with the hope of higher returns.

Websites providing manager and performance data such as www.morningstar.co.uk and www.fidelity.co.uk/direct/directflash.html will give you a feel for what returns are possible.

Before investing, GPs might find speaking to an adviser helpful. An independent financial adviser (IFA), bank or insurance company representative can help assess suitable options. There might be a charge for advice, if the adviser does not take commission from financial services providers, so it is wise to clarify this before the meeting. One low-cost method to open an ISA is through internet access.

Having opened an ISA, you will be able to alter the investment, be it a cash ISA or stocks and shares ISA. During the year you will be able to change from one ISA to another.

- Morley Rowe is director of financial services at Tenon Financial Services

- For further details visit morley.rowe@tenongroup.com or call (01324) 475708

ISA BASICS

- The maximum ISA investment is £7,000 per person per tax year.

- Investment can be lump-sum payment or regular.

- In each tax year (6 April to 5 April), an investor can save: £7,000 in a maxi ISA investing in stocks and shares, or £3,000 in a mini-cash ISA and/or £4,000 in a mini stocks and shares ISA.

You can only invest in:

- One maxi ISA only per tax year, or one mini cash ISA and one mini stocks and shares ISA.

- Normally an ISA can be transferred to another ISA provider without affecting the tax protection.

- ISA investments are normally readily accessible and normally without penalty on exit, with either partial or on full encashment.

- You must be resident in the UK.

- The investor must be at least 16 to invest in a cash ISA and 18 to invest in a stocks and shares ISA.

You can open an ISA through:

- A bank or building society (including online).

- Financial advisers.

- National Savings & Investments via post offices or at www.nsandi.com.

- Investment and insurance companies.

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