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Complexity
Sometimes more complexity is a good thing!

The UK Mainstream Press

The UK mainstream press has finally come around to reporting on the Italian referendum. By the time you are reading this it will be over. We should start to see the impact on the Italian banking system and whether it will have wider implications for the EU and the Euro zone. Once again investors are waiting to see how political events will impact on their savings.

In the meantime we are offering Flexible ISAs which were announced in the 2015 March Budget. I welcome this additional complexity to my life as investors often need short term access to their long term money. We have allowed access to your ISA funds through loan accounts. This does result in you having to pay some interest on the loan for the funds that you have raised against your savings. We won’t stop this facility as a result of the new Flexible ISAs and it will still be a useful benefit for those seeking to raise larger sums which may not be repaid before the end of the tax year.

That is where the complexity comes in!!

Now, I should warn you that most, but not all banks are offering Flexible cash ISAs and there may also be some restrictions if you have committed to a fixed rate within your cash ISA. We will also change our ISAs to Flexible ISAs, but this flexibility is unlikely to be as common in stocks and share ISA than with cash ISAs. When we research financial products and their providers we look for two things, firstly can we replicate our investment ethos within the product. Secondly, we consider whether the provider has a history of adopting new features and benefits as the government introduces them. From your point of view as an investor you should make sure that you select a provider that is progressive in adopting new features. The cost of moving your ISA or pensions for that matter in order to access a new feature can be costly and avoided.

 

In simple terms, flexible ISAs allow you to withdraw part or all of your funds that you hold in an ISA and replace them before the end of the tax year without this affecting your ISA allowance [£15,240.00 for this tax year rising to £20,000.00 next year].
Some of the things that you must take into consideration:

  • You will lose the ability to replace money at the end of the tax year in which you withdrew it.
  • You have pay it back to the same ISA and provider [same provider if the account was closed]
  • You can’t transfer the withdrawn allowance to a new provider.
  • You can’t transfer the withdraw allowance to a different type of ISA.[ie Cash to Stocks & Shares]
  • Providers don’t have to offer flexibility.
  • Will not be available on Junior ISAs [JISA] or Alternative Permitted Subscriptions [APS ISAs]

From what we have seen most economists managed to correctly predict that Sterling would fall, after that they failed to anticipate the movement in the equity markets, employment and GDP growth in the short term. The effect of the political risk in the UK becoming like that of emerging market economies makes it likely that their long forecasts are even less accurate.

This week's events prove how unpredictable near future is and although we have taken some action as investing overseas has become more expensive due to the current price of sterling, maintaining a well diversified portfolio is essential especially with an increase in inflation expected over the next year.

At times like these many wealth managers offer free reviews for those checking to see if their savings, investments and/or pensions are performing as expected.

This is a brief summary of the new flexible ISAs. One of the best articles on how this works in practice can be found at https://www.bba.org.uk/wp-content/uploads/2016/02/Flexible-ISA-Customer-web-version.pdf
Feel free to email me if you have any questions about this.

 
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