MONEY BOX LIVE. Presenter: RUTH ALEXANDER. TRANSMISSION: 4 th JUNE RADIO 4

Transcription

1 THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. MONEY BOX LIVE Presenter: RUTH ALEXANDER TRANSMISSION: 4 th JUNE RADIO 4 ALEXANDER: Hello. You ll be able to save more money without paying tax in a matter of weeks. On 1 st July all ISAs are going to magically turn into New ISAs or NISAs for short. You ll be able to shelter up to 15,000, 3,000 more than at present, and you ll be able to invest the full amount in either stocks and shares or cash rather than splitting it between the two. These tax free accounts are designed to be simpler and more flexible than the ISAs on offer at the moment, but providers have been putting restrictions in place. The window to top up your account is quite limited in some cases. With me to tell us more and to help you find out what you can invest in through a NISA and what the best cash rates are - Anna Bowes from the Savingschampion.co.uk; Christine Ross, Head of Financial Planning at SG Hambros; and Chas Roy-Chowdhury, Head of Taxation at the Association of Chartered Certified Accountants. For your chance to benefit from their expert guidance, you can call Money Box Live now with your question on Which is what Paul has done and Paul you re on the line from your allotment in Bexleyheath. PAUL: Good afternoon. ALEXANDER: Hello. PAUL: My question is: at the start of this tax year, in April, I took out an 18 month fixed rate cash ISA with the Halifax and I believe the interest was 2% or 2.3%. When July comes and, sorry, that was 5,940, the maximum amount I believe that I could put in when the new rate increases in July, do I have to stay with the Halifax and add to that ISA or can I go with another ISA provider and/or stocks and shares ISA?. 1

2 ALEXANDER: Anna Bowes? PAUL: And that s my question. ALEXANDER: It s a good question. Thanks Paul. BOWES: Yeah I ll deal with the cash side of things, Paul. The tricky thing with fixed rate ISAs in the past has been it s difficult to top up some of them after you ve made your initial investment, but all of the ISA providers we contacted, all the ISA providers that have these (and with varying timescales) you can top up from 1 st July. So you will be able to use the whole of your allowance, if that s what you want to do, to top up this Halifax ISA. What you couldn t do would be to open another cash ISA, but you can open a stocks and shares ISA if you want to. ALEXANDER: So with this Halifax ISA that Paul s opened, how long has he got to top up? BOWES: Well they ve extended the time to allow him to top up from 60 days I think it was to now 180 days from when he opened the ISA. As I said, lots of providers have lots of different rules stemming from having two weeks to top up your ISA from 1 st July to being able to top up to the end of the tax year. ALEXANDER: Who s only allowing 2 weeks? BOWES: Well NatWest RBS had an ISA that if you d opened it very early in the tax year, you have until 18 th July from 1 st July to top that ISA up. They ve since opened a new one which has got different dates, so you have to be very careful. ALEXANDER: So this 15,000 limit sounds very exciting I m sure to people with that kind of money in cash. As long as they hit their provider s window, they can put it in. But if you haven t got that money upfront and you actually want to kind of drip feed your ISA through the year, you re not necessarily going to be able to get up to the 15,000 limit. BOWES: That s absolutely right, especially not on This is fixed rates, in particular, so if you ve got an easy access ISA or usually a notice ISA or even a 2

3 regular savings ISA, you know you can still top up that throughout the year. So the main restriction has been on fixed rate ISAs and if you register on our site you can get a free guide that gives you all of those dates and we ll remind you nearer the time when you can. ALEXANDER: Is it going to be this complicated every year, do you think? Or are these time limits, these time restrictions really a result of the fact the Government s bringing in this New ISA in the middle of the tax year? BOWES: Yeah, the great news is that providers have reacted really well, I think, to the surprising news that this allowance was going to happen, and they have all relaxed the rules around topping up your fixed rate ISA. As I say, with variable rate ISAs it s a whole different matter and it s always been much more flexible, but they have reacted well to that but they haven t all got the same window, so it really is important to check what window you have to top up if that s what you want to do. ALEXANDER: And back to Paul on the allotment. Paul, you are also interested in putting some money into stocks and shares through one of these New ISAs. PAUL: Yes and the reason I m asking that question is because obviously the fixed rate that I took out in April for the cash ISA was just well 2% or just over and I m aware or believe that as soon as this new limit rises in July then there ll be opportunities to get a higher fixed rate with other providers. And obviously from what your answer is, I can t do that now, so BOWES: Well you can if you transfer the whole of your Halifax ISA, but the problem you ve got is a fixed rate, there ll be a penalty if you re allowed to have access at all. So you are a little bit more restricted now. Whether there are better rates, you know we ll have to wait and see. ALEXANDER: So Christine Ross, what should Paul be thinking about if he s thinking about getting into stocks and shares investment through a New ISA as he is? ROSS: The first thing to think about with stocks and shares, Paul, is really to be sure that you re happy to see your base capital go up and down because you know there 3

4 will be no straight line run in the upward direction. It can be volatile. A good place to start is to look at an investment fund like a unit trust, which is just a portfolio managed by a manager, which is a balance looking at UK shares that have income and maybe looking at something that has a bit of overseas as well because the UK stock market is certainly not the top performing every year. So looking at a good balanced income and growth fund. That s the sort of sector you want to have a look at. Plenty of weekend press and website information you know on all of these and you can compare performances as well. But certainly with your ISA, you ll have free capital gains, but more importantly all the income through dividend and interest raised by those funds will be tax free. ALEXANDER: And how does it work? If your shares do really well and you ve made lots of money, how does it work if Paul wants to get the money out? I mean it s then going to be out of his ISA limit and it can t ever go back in. That s right, isn t it? ROSS: Well that s right. If Paul wants to receive some of that money I mean in most cases people will invest in a stocks and shares ISA with the actual fund management company. And these are offered as units and if Paul wants to get some money out, he simply writes in or telephones to cancel some of those units and they will cash them in and send the money back to his account. Now once that s out, it can only go back in as part of a future year s allowance. So presumably if the money s being taken out, it s because it s needed to spend as income, for example. ALEXANDER: Are you taxed on dividends? ROSS: No. Other than and this is the same for everybody ISA managers can no longer reclaim what we call the withholding tax. Notionally 10%. I ll let Chas talk about that more, but notionally there s a deduction and all dividends, pension schemes, ISAs, everything suffers that, and individual non-taxpayers holding shares in their own names. ALEXANDER: Well Chas Roy-Chowdhury is sitting here, our tax expert, in the studio as well. A stocks and shares ISA can be really beneficial for many people listening. Perhaps for Paul? 4

5 ROY-CHOWDHURY: Well that s right. You don t have to suffer any capital gains tax, but then again the capital gains tax allowance is towards 11,000 per individual and you can have a spouse and you can double that up. But then you don t have to pay any tax on the dividends and so you know that s certainly worth having. But also what I think you need to weigh up is do you really want to pay tax on dividends and if you ve got a lot of cash avoid paying tax on the cash because the cash itself could also attract high levels of interest and that s then taxable outside an ISA. So I think you need to balance out what sort of portfolio you want, and you need to make sure that you actually aim at that kind of strategy. What I would also say is which Paul alluded to is perhaps hang on till 1 st July and see what sort of deals there are, and it may well be worth taking the penalty with the Halifax deal and moving somewhere else because we were discussing earlier that there may well be a real sort of ISA season or a NISA season coming up. ALEXANDER: Well on that note - Paul, first of all thank you very much for your call - Christopher is on the line. And Christopher, I believe you have a question about where the best rates might be found? CHRISTOPHER: Yeah. I m due to receive 25% of a final salary scheme a few days after (my pension provider tells me) my 65 th birthday, which is on 20 th June this year. I m thinking that 15,000 - which I understand is the maximum I can put into an ISA, be it cash or stocks and shares - will be you know available to me after 1 st July. I want to sort of look at it as a nest egg, but something I might need to call on in an emergency. I do have some other funds in I won t mention the name I suppose that s not appropriate on the BBC with Oh I don t know what it s called. ALEXANDER: Go on, mention the name. We don t mind. CHRISTOPHER: It s a fund anyway. So I d like to spread the risk, so to speak, but I m just wondering whether I d be best advised to put it into stocks or shares or a cash ISA? ALEXANDER: When you say you want some access in case something arises, do you think you want instant access or could you think of a 1 year or a 2 year fix, do 5

6 you think? CHRISTOPHER: Well I was thinking that if there were a penalty then maybe I could Because, as I understand these things, with interest rates don t you have a reduced interest rate if you take some money out? ALEXANDER: Let s ask Anna Bowes. First of all, what are the best rates? And then let s talk about the nitty-gritty like if you need to get your money out of a fix, how much it might cost you. BOWES: Well the very best rates in the savings world at the moment actually come from outside the ISA, so very briefly you can get up to 3% or 5% on some high interest paying current accounts. But let s not ignore the ISA allowance. CHRISTOPHER: They re subject to tax though, aren t they? ALEXANDER: Yes, income tax. BOWES: They are, exactly. And even though after tax you might be able to earn more than an ISA, I think it s worth not ignoring your ISA allowance because when we and interest rates do recover in the future, then you know you may have lost your ISA allowance because obviously if you don t use it, you lose it. CHRISTOPHER: Yeah. BOWES: So the longer the term, the longer you put your Again I m talking about cash ISAs here, but the longer you tie the money up for, the better the rates. CHRISTOPHER: Yeah. BOWES: So, for example, for 5 years you can get up to 3% on a fixed rate cash ISA. CHRISTOPHER: Oh right. ALEXANDER: But 5 years is a long time. BOWES: Five years is a long time. 6

7 ALEXANDER: What would the penalty be if you were taking out something after 5 years? BOWES: Well that particular provider says that they ll tell you what the penalty will be when you apply for it, so ALEXANDER: And who is that provider? BOWES: That s Julian Hodge Bank. ALEXANDER: Right. BOWES: But they can be anything up to a 360 days loss of interest, so really you lose a whole year s worth of interest if you access the money. CHRISTOPHER: Yeah, yeah, I m with you. BOWES: What is interesting though is most of these best paying fixed rate ISAs are offering you access. They don t have to. They can often say we re not going to give you any access at all until maturity. The Leeds actually has a 5 year fixed rate ISA that s paying a little bit less 2.85% - but you can have easy access to 25% of that without penalty. CHRISTOPHER: Oh that sounds excellent. BOWES: Yeah. So that could be something that sort of bridges the two. CHRISTOPHER: Yeah that sounds good. BOWES: On a shorter term, just to give you an indication, you can get around 1.65% for a 1 year fixed rate ISA. In a branch the Punjab National Bank has better rates, but you have to go into a branch and I think they re quite limited where those are. You can get up to 2.15%. So it just gives you an indication that the shorter the term CHRISTOPHER: What I m trying to do is maintain the value of the fact that I ve had a tax free amount if you like, you know. I don t want to lose the value of it, if you like, because I don t have any other savings as such. 7

8 ALEXANDER: What about instant access? I think the Coventry has a rather tempting 2% interest ISA there, but it s branch only again. BOWES: Yeah it s branch only, so if you live You re in the Midlands. CHRISTOPHER: Yeah I ve got one in the village I think where I live. Yeah that s good. BOWES: Yeah so they do. I mean it s always worth looking at your local provider to see if they offer something for local savers only or you can only go into a branch. But absolutely, they ve got their branch instant ISA paying 2%, and you have easy access on that. ALEXANDER: But if you couldn t get into one of their branches, what else is there? BOWES: If you can t, it s quite interesting. I talked about those high interest current accounts and those providers are also offering better rates if you ve got one of those - you can get up to 1.75% with Nationwide, 1.7% with Santander. But if you don t have one of those, you can get around 1.55% with the Hanley Economic or 1.5% from a number of providers including NS&I. ALEXANDER: Chas Roy-Chowdhury, how do you go about working out if something like a current account might be better for you than a tax free account? ROY-CHOWDHURY: Yeah I think in Christopher s case, it depends on what your tax rate is. So if you are taxed at 20%, then you ve got to CHRISTOPHER: Yeah that is my tax rate and I m continuing in work as well. ROY-CHOWDHURY: Oh I see, okay. Even so, I think it s very important that you actually put as much into a tax shelter as possible, such as the NISA. But you ve still got 11,500 left and I think what you perhaps need to do you have that easily accessible as well, but maybe what you might do is if you have a partner you might give it to them and they can put it into an ISA as well and that then makes sure that you ve got both amounts easily accessible but they re avoiding tax. And so I think you need to think about those. And that means you then maintain the value of the 8

9 amount you ve got 26.5 thousand CHRISTOPHER: Yes that s right, that s the figure exactly. ROY-CHOWDHURY: Yeah and at the same time you re actually not paying any tax on it. So I think that would probably be something you need to consider. ALEXANDER: Christine Ross, Christopher mentioned that you know maybe he might even think about stocks and shares as well, and the joy of this new ISA is that it s quite easy to mix up the two cash and stocks and shares. ROSS: It is far simpler to be able to have an account now, if you wish to, with one organisation. Most people tend to look for a different firm to manage their stocks and shares from that that they place their cash with, typically because organisations that manage your stocks and shares don t necessarily have the highest cash rates. I think what I d say there is the words I took away from what Christopher said at the beginning was nest egg and I think, Christopher, it would be a good idea in your own mind to decide how much of that money is absolutely cast iron, must have the capital value. CHRISTOPHER: Yeah I think so because we have a son, a 24 year old son who is somewhat how can I put it? he s in work, has a girlfriend but he s somewhat unsettled, you know, as to his immediate future sort of thing. ROSS: You may want to help him and you may need to rely on that money for income. It may be that you take a small proportion of that money, you invest it through a separate stocks and shares ISA perhaps in an investment fund with a good track record. Something I ve said earlier today: income and growth - it s looking at some shares that have some dividend, the whole thing will be tax free. And if after several years you either make some money or you decide it s not for you, it can just stay in the same you know ISA world or NISA world (as it s going to be) and move straight back into your cash account whether it s the same organisation or a different one. CHRISTOPHER: Right, thank you. 9

10 ALEXANDER: Christopher, thank you very much for your call. CHRISTOPHER: Thank you so much for all the information you ve given me. I ll try and assimilate all that. ALEXANDER: Well there will be a transcript available on our website, bbc.co.uk/moneybox, in a couple of days time, so that might he some help to you and to other people listening too. Just before we move on from cash rates, Anna, I just wanted to pick up a point that Chas had made. Do you think that July, when this new ISA and the new limit comes in, we could see some rather more tempting rates from providers? BOWES: Well there s the hope that that will happen for savers. Traditionally you see around the March/April time, which is the end of the tax year and the beginning of the new tax year, you tend to see what we call an ISA season. It wasn t much of one this year, I m afraid, because there s just no appetite for savings providers to take your money. So things are slightly changing. There s a scheme called the Funding for Lending Scheme which may mean that providers are starting to look towards savers to raise funds again. So that, coupled with the new ISA season, may, may I can only stress it may help increase some of the rates a little bit, but we have to wait and see really. ALEXANDER: If we all had a crystal ball, it would just be so much easier, wouldn t it? BOWES: Yes it would. ALEXANDER: David s on the line from Norwich. David, what s your question? DAVID: Yes hello. I ve got a stocks and shares ISA for the current tax year, 2014/15, and it consists entirely of funds and investment trusts and there s about 15 in all in the ISA. Within the ISA itself, the current year s subscriptions, which are being drip-fed monthly, they re going into three specific funds. The remaining 12 funds and investment trusts, I had an ISA in previous years which basically I cashed in and got it transferred to the ISA I ve now got for the current tax year and I used the cash to 10

11 purchase these funds and investment trusts. As I say, there s about a dozen of those. My question is this that does the 15,000 limit If I wish to transfer the funds or money from the funds and investment trusts that really originate from previous years, does the 15,000 limit apply to that? ALEXANDER: Christine Ross, you re shaking your head. ROSS: I know. So, David, just to be clear. Money you contributed in previous years, those assets can be transferred to let s say a NISA, if you wish to do so, and will not form part of your current year contribution total of 15,000. However, as you said earlier, anything that you have contributed since 6 th April this year, that will form part of your 15,000 and your contribution running from April to April. DAVID: Right, right. ROSS: Yes? DAVID: Yes, I understand that. And would I have to sell the specific fund? Do I have to sell the funds that the money from previous years represents or can I just sell whichever funds I want? ROSS: It will depend very often on the organisation that you have your existing ISAs with. Some organisations require you to sell individual contribution years. So let s say you had contributions between 2012 and They will deal with each discreet year. It s unusual for if you had lots of years ISAs with one organisation that you d have to sell the whole lot. They would require you to do it year by year. They won t generally let you do a part year, so just any amount of value that you pick. They will deal with it tax year by tax year. So you might have 5 for example if you ve been contributing for a long time and you only have to transfer, as I said, identify each set of contributions and value by the years the contributions were made. DAVID: I see. ALEXANDER: And from 1 st July you could transfer everything into cash if you wanted. 11

12 ROSS: Absolutely. And what would normally happen and David, I m not sure if I misunderstood, if you actually drew money out of an ISA before and put it back in as a new contribution, I may have misunderstood but if you do want to transfer, the simplest way is to go along to your chosen new provider. And if it s a bank or building society for cash, you go along, you fill in their documentation and they deal with it for you. They call the money up. So if you had stocks and shares through investment trusts, investment funds, they would deal with the broker, the provider, and what would happen is that the existing holder would sell all those assets, convert everything to cash and then send the cash along. It s not your new provider that sells the assets for you. ALEXANDER: And the old word of warning still applies, doesn t it that if you want to keep your tax wrapper, make sure you transfer from one ISA to another ISA. Don t withdraw your money because you can t then put it back in. DAVID: Yes, yes. ALEXANDER: David, thank you very much for your call. DAVID: Thank you very much. ALEXANDER: Mary s on the line from Tunbridge Wells. What s your question please, Mary? MARY: Oh hello. I don t know if some of this has been answered already. I have ISAs through my bank and I have an old TESSA ISA account and I have I think two years of ISAs with a building society scattered all over the place. My question is should I gather all this together and transfer it to one ISA provider and then, if I choose, you know put the new year s - July whatever - yes into the same provider? ALEXANDER: And Mary, those are cash ISAs I m assuming? MARY: Yes. ALEXANDER: Anna Bowes? 12

13 BOWES: Yeah I think Mary Hi Mary. What you might discover and I think it s important to know what interest rate you re being paid on those old cash ISAs or the old TESSA ISA in particular because I m afraid if you ve had them for a very long time, they re probably not paying very good interest rates. So the benefit of transferring would be to increase the amount of tax free interest that you earn on your ISAs. In addition to that, it might be a bit handier for you to have them all with one provider, so you know where they are. But that comes with a small word of warning is that if the amount that you have accumulated is more than 85,000, in order to make sure it still remains protected by the Financial Services Compensation Scheme should anything happen to your cash ISA provider, you might want to split it. But if you ve got less than 85,000, find the best rate and potentially you can put all your money with that or you could have maybe some in a fixed rate ISA and some in an access ISA. But always look for the best rates. It s always sensible to review and switch and transfer your ISAs to keep the rates as good as possible. ALEXANDER: Thank you, Mary, for your call. We ve got an from Gary talking about compensation rates. He said, I opened an 18 month ISA in April and transferred all my existing ISAs into it, along with the permitted amount which brings me very close to the bank compensation limit which is 85,000, isn t it? If I add to this ISA in July, it ll push me over that limit. Can I open another cash ISA in these circumstances to give me that protection should the current provider go bust? BOWES: So, sorry, if he hasn t subscribed to a cash ISA so far in the current tax year, then absolutely he s able to do that because it s each tax year is the key. So if he s close to it with his old cash ISAs and he wants to use his ISA allowance up this year, yeah he might be best to look at someone else. ALEXANDER: And in terms of compensation limits for investments, it s 50,000 isn t it, Christine Ross, in terms of you know if someone you re invested with goes bust or there s some wrongdoing? ROSS: Well yes, but generally that is more where there s wrongdoing because funny enough not funny, but you know if there were a problem with investments for stocks and shares, unit trusts and so on, most of these are held in what s called a 13

14 custodian, like a separate account, client money that is entirely separate from the firm that s managing your money for you. So in some cases the most dangerous thing can be to have cash above the 85,000 because that sits on a bank s balance sheet, so if the bank goes down, goodness forbid, that can be lost. Whereas with stocks and shares, if your adviser goes down the money s actually held separately, so that compensation is much more for something perhaps fraudulent because if your stockbroker goes bust actually you re not at risk unless there s fraud because those assets are held entirely separately. ALEXANDER: Okay, thank you. Philip s on the line from Middlesbrough. What s your question please, Philip? PHILIP: Oh hi. Yes we had a bond matured earlier in the year, January, and we were encouraged to wait until July for the rates to improve. I ve been listening to the programme and you ve been talking about a crystal ball a little bit. ALEXANDER: I ve got one just under my desk. PHILIP: We don t want to do anything other than invest this for a significant period -five years would not be unreasonable - but we want a good return and we were advised that we might get 4%. I m not convinced of that. BOWES: Yeah. ALEXANDER: Afraid not. PHILIP: My bank will say we can give you 1.6 instant access. ALEXANDER: Philip, you should see the raised eyebrows in the studio. Anna Bowes? BOWES: Yeah just very quickly, Philip, your 1.6% from your bank s not bad. We talked about those rates earlier. You can get up to 1.75% if you hold certain accounts or 1.5%. And again, as I ve talked about, the best rate on ISAs at the moment is for 5 years Julian Hodge Bank paying 3%. So if you re looking at less than that, 2 years for example, you can really look at - unless you ve got a Santander 123 Account - 14

15 you re looking at 2.05%. With Santander, it s 2.3%. So it just gives you an indication of those rates, so have a shop around. ALEXANDER: Okay, thank you. Philip, thanks for your call. That s all we have time for. My thanks to Chas Roy-Chowdhury from the Association of Chartered Certified Accountants; Christine Ross from SG Hambros; and Anna Bowes from Savingschampion.co.uk. Thanks to you for all your calls and s. You can listen to the programme again and in a couple of days read a transcript on our website: bbc.co.uk/moneybox. Paul Lewis is back at noon on Saturday with the week s personal finance news I believe he s lost in pension small print as I speak and I ll be taking more of your calls on Money Box Live next Wednesday afternoon. We ll be talking about student finance. 15