Save, make, understand money


Investors throw away thousands by not using ISA allowance

Joanna Faith
Written By:
Joanna Faith

Investors could miss out on £75,000 over 25 years by not making the most of their ISA allowance, with the figure jumping to more than £115,000 for higher rate taxpayers.

The tax free advantages of ISAs, together with the power of accumulation and compounding over the long term, means savers who do not use the tax wrappers will be significantly worse off over 25, 15 and 10 years, according to analysis from Fidelity Worldwide Investment.

Tom Stevenson, investment director at Fidelity said: “Savers not using their ISA allowance are simply surrendering their hard earned money to the Government. It is critical for savers to understand that these tax advantages can amount to thousands and thousands of pounds over time and make a very big difference to their final savings pot.”

For a higher-rate tax payer investing in an equity growth fund, the analysis shows a portfolio could grow to £793.447 within an ISA, compared to just £677,343 outside of the tax wrapper – a difference of £116,104.


 Higher rate taxpayer over 25 years Equity Growth Fund  Equity Income Fund  Corporate Bond Fund 
 Inside an ISA  £793,447   £793,447  £690,036
 Outside an ISA   £677,343  £662,695  £524,143
 ISA tax benefit  £116,104  £130,752  £162,894


Stevenson added: “Put simply, if you save in an ISA you are entitled to keep all that you receive from your investments and not pay any tax on it. If your investments pay interest, that’s tax-free. If they pay dividends, those are also tax-free, as well as any capital growth. It’s also worth noting that this tax advantage is based on the present rate of capital gains tax of 18% for a basic rate tax payer and 28% for a higher rate tax payer.

“If these or any other tax rates go up in future the advantages will become even greater. The real value of tax benefits is underestimated because we tend to look at the tax benefits in the short term and don’t incorporate the long-term power of accumulation and compounding.”