Image source: Getty Images
The Budget disappointed millions of investors with its news about ISA limits. The chancellor announced plans yesterday (31 October) to keep the annual allowance for ISA contributions the same for at least the next decade.
Given the impact of inflation, that probably amounts to bad news, meaning an annual reduction in the ISA allowance for future years, in real terms.
However, I think an ISA can be a useful investment tool. I hold a Stocks and Shares ISA and the annual contribution limit here will remain at £20,000. For most investors, that’s a lot.
So here’s how I plan to react to the news that the ISA limit will now be frozen for the next few years.
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.
Focus on positive energy
Most people don’t even deposit their full ISA allowance each year as it stands. So whether the limit goes up or not would make no difference to them in practice.
Budgeting has been a great step for me to look at how I can make the most of my existing ISA allowance. Even with £20k, it gives me a huge opportunity to invest in the stock market in a tax-efficient way.
Keeping money inside an ISA wrapper
The frozen limit also reminded me of the importance of keeping money within an ISA once it is there. In particular, if I receive dividends or make a large profit from selling shares for more than I paid for them, I would be tempted to take that money out of an ISA wrapper.
But while they remain within my Stocks and Dividends ISA, those funds enjoy tax benefits. Once I have taken them out, if I want to repay the same amount in the future, I will be using part of my ISA allowance.
By taking a smart approach to this, I can invest over £20k with my Stock and Shares ISA in any tax year, although I don’t exceed the annual allowance of £20k new donations.
Building wealth by buying large stocks
When the dust settles on the Budget – and after that – I’ll be doing what I always do. I will try to build wealth by stocking my ISA with large stocks that I buy at attractive prices, then hold for a long time.
As an example, one UK share I bought this year Filtronic (LSE: FTC). I share price up 759% in the last five years. So it might not look like I’m getting a lot of deals in 2024.
But I think it’s possible that the company is moving forward. This year many contracts were won with SpaceX. In fact, the business is seeing such demand that it added a second production line over the summer and expects to add another this month.
Over-expansion can be expensive if customer demand drops and this is a risk for Filtronic. But I think the SpaceX contracts could change the business game.
Reconfigured the SpaceX gateway links to the company’s existing US site Starlink satellite network and providing new parts. As Starlink grows, that could mean more orders for Filtronic – and a strong example to help attract other customers.
Source link
