Are you missing an ISA deadline? Here is the possibility of losing forever!
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At this time of year, it can be hard to avoid mentioning the looming ISA deadline. That happens every year at the end of the tax year, which is this weekend (April 5). It is for people to invest in their own shares and ISA shares.
Once the deadline has passed, this year’s donation money will be gone forever.
However, as one door closes, another opens. At midnight on 5/6 April, the current ISA contribution allowance for the tax year ends but another one soon starts.
Given that, it would be easy to wonder what all the fuss is about. But doing nothing in the next few days could be a costly mistake. Here is the reason!
An ISA wrapper offers tax benefits that can be combined
Simply put, money invested in a stocks and shares ISA is protected from the taxpayer. In effect this means that if a person makes a large profit from the shares in their ISA when they sell them, they are tax-free. Dividends they receive within an ISA are also tax-free.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Even better for a long-term investor like me, those untaxed benefits can stay inside the ISA wrapper. So for example they can fund a lot of share buybacks.
It has the effect that although the average investor can only put £20k a year into their ISA, they can actually increase their investable amount by more than that every year because of the benefits that are kept within the tax-free fold.
The cost of doing nothing
Does any of this matter? Absolutely – for two important reasons.
First, legally shielding investments from taxes such as capital gains tax and income tax can be a significant saving.
Depending on how well those investments perform, that could mean a large amount of money could stay with the ISA holder instead of being forced out by the taxpayer.
Second, this may give something to the modest taxpayer. With so many discussions focusing on the standard £20k annual allowance, many of us may be thinking ‘I don’t have anywhere near that spare to invest in the stock market, so this doesn’t matter to me‘.
But remember – that £20k figure is a ceiling. Even someone with a very small investment – a lump sum of a hundred pounds, say – taking advantage of their ISA allowance can help them legally reduce their tax bill.
I am happy with this sharing!
That may seem like an education. But what if the share goes up and thus can attract tax on a large capital gain or with a small investment?
One share that has increased is the digital advertising agency S4 Capital (LSE: SFOR). It rose 455% in a year and a half, to more than £8 a share. Well – that was years ago! Now it sells for pennies.
However, as a long-term investor of S4 Capital, I think it may now be undervalued. This month, it announced a 10% dividend increase. Total debt has been greatly reduced. The company’s digital focus can help it guide clients through the AI revolution.
Then again, it might not happen. Revenues are falling and there is a risk that AI could eat an ad company’s lunch, hurting revenue and profits.
That danger is real. But I plan to hold on to S4 Capital shares in my ISA, as I think its improving balance sheet and strong digital capabilities deserve a very high rating.
