ISA’s and Socrates..

ISA’s and Socrates..

Whoever would have thought that Socrates, the greatest of the great masters, would have a role to play in a blog about Individual Savings Accounts (ISAs)

Socrates had a technique to demonstrate the lack of clarity in a person’s thinking, particularly when it related to a routine structure, that they didn’t fully understand

He would start with a thesis, then investigate a series of popularly held beliefs, then proceed to show how the statements are inconsistent with the original thesis

For fun, let’s apply that process to the ISA, a staple of many investment portfolios

ISA’s in the UK offer tax-free savings and investment options, exempt from Income Tax, Capital Gains Tax and dividend tax

Each year individuals can contribute up to £20,000 across 4 types of ISA account and, in most cases, funds can be accessed without penalty. Heck, you don’t even need to declare your ISA on your tax return

Financial advisors love ‘em. Their paraplanners write them into just about every investment report they produce, which keeps the compliance team happy, which increases the financial advisors ‘funds under management’, which increases the value of their business

Then, review once a year how the client’s 60% of the ISA is performing, and how HMRC’s 40% is doing

Here’s the thing: all ISAs are subject to Inheritance Tax which means that, if your total estate exceeds the threshold of £325,000 when you die, the tax authority will confiscate 40% of all of your ISAs

It’s worse than that..

Your kids only get 60%, but here’s the thing – their 60% has to grow by 66.7% just to get back to the value it was on the day you died!

Maybe there’s another way..

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