Demand for ISA wrappers

Investors seeking to shelter their investments from tax have not eschewed the ISA route this year.

Although for some this has not always been through fresh investment but rather a shifting of shares already owned to a tax wrapper.

According to the Investment Management Association net sales of ISAs were down at the start of the year, with outflows of £68.4m in January compared with inflow of £17m in December and £30.9m in January 2007. Whether end of season investments will pick up remains to be seen.

To what extent the uncertainties of the stock market have impacted investors will be evident when we see how successful the ISA season was. All but the most cautious of investors will largely have focused, for the sake of £7,000, more on the long-term benefit of investing tax-free and bucked the trend to stay out of a falling market and see the prospects for in fact investing at such a time.

James Daly, business development representative, TD Waterhouse Investor Centre says the year-to-date has been good, with TDW’s business 46% up on first quarter last year. “Lots of providers who have had a bad season are actively managed, so if investors see recent poor performance of a fund that is going to put them off. But if you have are execution only you don’t have to invest in very risky investments straight away, you can see how something performs before you plunge in.”

For TD Waterhouse business from investors looking to 'bed and ISA', possibly to crystallize capital gains, are up 24% compared to last year.

Beyond ISAs advisers may also be looking to keep investor momentum going by looking at other vehicles for making the most of tax shelters.

Tom McPhail head of pensions research at Hargreaves Lansdown says they could look no further than Self-Invested Pension Plans, SIPPs. But for those looking to tackle capital gains tax liabilities this season the moment may have passed.

“We have got beyond the point of being able to do bed and SIPP simply because of the time it takes for the transactions to clear. Where people were eligible for the 10% CGT liability there was the opportunity to dispose of shares, realise them at the lower gain rather than the 18% coming in next year and then re-purchase the same portfolios of shares inside the SIPP. But it was specialist stuff not mainstream.

“There are several million people now members of employer sponsored save as you earn type share-save schemes that we will increasingly see looking to roll some, if not all, of their maturing share-save shares across into a SIPP and protect those share investments from any future CGT liability”

Daly says he has seen a lot of interest in SIPPs although he points out there are limits there as to when and how much investors can withdraw. “ For something more short-term a spread betting account is also exempt from capital gains and it can be an easy way to get into certain instruments popular at the moment such as commodities and currencies. It doesn’t have to be risky."

McPhail meanwhile is positive on the prospects ahead.

“We anticipated some belt tightening for 2008 and it may get progressively tougher before we possibly see some loosening up in 2009. But so far this quarter has held up remarkably level and it is not just transfers of existing money in the system this is new money coming into ISAs and SIPPs.” 1 April 2008