Julian Knight: No wonder we can't be bothered with equity ISAs

The weeks prior to deadline day for investing your annual individual savings account (ISA) allowance – which falls on 5 April this year – used to be just about as exciting as it got in the heady world of personal finance. I know, I must get out more.

Back in 1999, at the height of the dot-com boom, investors were buying stocks and shares ISAs right, left and centre. I remember one unit trust firm hiring a helicopter to ferry last-minute ISA applications. ISA investment had caught the imagination of more than your usual money hobbyists.

Friends of mine jumped into ISAs in the months leading up to the crash, egged on by financial advisers. As many of you will know, this situation ended in tears when the "new paradigm" of the dot-com age – basically, the old-fashioned notion that profit and turnover didn't matter – was shown to be codswallop. Even those investors who hung on in there after the crash are still down on the deal, nearly a decade later (so much for the ability of shares to outperform other investments over the long term). In the process, a generation of small investors were turned off ISAs for good.

Now, against a backdrop of credit crunches and talk of impending recession, most unit trust or investment trust fund groups I speak to say that investor interest is practically zero. Most of them barely need a letter opener, never mind a helicopter.

But the lack of excitement surrounding this ISA deadline isn't just the result of painful memories or current market turmoil. There is something more fundamental at play. Put simply, the stocks and shares ISA tax break has become a game, for many, no longer worth the candle. And this is because of government policy, some of which was confirmed in last week's Budget.

It all started in 2004 when the Government turned the same trick that helped undermine workplace pensions by taxing dividends earned on shares held in ISAs. This reduced the growth potential of millions of the accounts. Fortu-nately, whatever growth is to be had from an ISA is still free from capital gains tax (CGT). But from April the rate of CGT will fall from 40 per cent to 18 per cent, in effect reducing the benefits of ISAs.

Throw into the mix the fact that you can make a capital gain of £9,200 in a single tax year before triggering CGT and it's true to say that the tax break only really comes into play when you invest large sums that grow substantially over the long term and are then cashed in almost at once.

Last Wednesday, the Chancellor confirmed that from April the amount that can be paid into stocks and shares ISA each year will rise from £7,000 to £7,200. That's a miserly 3 per cent and is the first increase since ISAs were introduced in 1999. If ISA allowances had kept pace with inflation, they'd be around the £10,000 mark today.

Of course, on balance, it's best to hold unit trusts or investment trusts inside an ISA rather than outside, just in case you have to cash them in at once and you have been fortunate enough to make a substantial capital gain. But the tax breaks as they now stand hardly justify anything approaching excitement.

Suggested Topics
Voices
voices
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
Arts and Entertainment
Peter Griffin holds forth in The Simpsons Family Guy crossover episode
arts + ents
Sport
Laura Trott with her gold
Commonwealth GamesJust 48 hours earlier cyclist was under the care of a doctor
PROMOTED VIDEO
Arts and Entertainment
Gal Gadot as Wonder Woman
arts + entsFilmmaker posted a picture of Israeli actress Gal Gadot on Twitter
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
arts + ents
Arts and Entertainment
Pedro Pascal gives a weird look at the camera in the blooper reel
arts + entsPrince Oberyn nearly sets himself on fire with a flaming torch
News
Danny Nickerson, 6, has received 15,000 cards and presents from well-wishers around the world
newsDanny loves to see his name on paper, so his mother put out a request for cards - it went viral
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
News
Orville and Keith Harris. He covered up his condition by getting people to read out scripts to him
People
Arts and Entertainment
Zoe Saldana stars in this summer's big hope Guardians of the Galaxy
filmHollywood's summer blockbusters are no longer money-spinners
Arts and Entertainment
O'Shaughnessy pictured at the Unicorn Theatre in London
tvFiona O'Shaughnessy explains where she ends and her strange and wonderful character begins
Life and Style
Workers in Seattle are paid 100 times as much as workers in Bangladesh
fashionSeattle company lets customers create their own clothes, then click 'buy' and wait for delivery
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Application Support Analyst / Junior SQL Server DBA

    £40000 - £45000 per annum: Ashdown Group: An established professional services...

    Senior Risk Manager - Banking - London - £650

    £600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

    The benefits of being in Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Test Analyst - UAT - Credit Risk

    £280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

    Day In a Page

    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on
    It's the best of British art... but not all is on display

    It's the best of British art... but not all is on display

    Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
    Critic claims 'I was the inspiration for Blanche DuBois'

    Critic claims 'I was the inspiration for Blanche DuBois'

    Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
    Sometimes it's hard to be a literary novelist

    Sometimes it's hard to be a literary novelist

    Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
    Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

    Edinburgh Fringe 2014

    The comedy highlights, from Bridget Christie to Jack Dee
    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    The woman stepping down as chair of the Heritage Lottery Fund is worried