Should I Get a Stocks and Shares ISA in 2024?

Should I Get a Stocks and Shares ISA in 2024?

If you're not saving and investing at all or consistently into your Stocks and Shares ISA this post is for you.

Today we want to share with you why saving money in your ISA (Individual Savings Account) should be a priority now more than ever before.

We recently did a poll on our YouTube channel and asked “How much money do you currently have saved in all your ISAs?”

The results were shocking but understandable given the cost of living crisis:

About 53% of the £1,500  respondents said they had less than £10,000 in total across all their ISA accounts.

A total of 75% of the respondents had less than £25,000.

First of all, a massive well done if you have some savings given the current economic climate.

We then did a bit more research into ISA savings just to see how normal this was.

According to the Resolution Foundation, using HMRC data, we found the following data: 

The statistics sent chills down our bodies.

The chart looks at the average family ISA, by location and by ethnicity.

And the average Black family has £3,000 in ISA savings, compared to £5,000 for Asian families and £15,000 for a White family.

That's five times the average for a White family compared to a black family.

This speaks to not only income disparities but also systemic issues that have reduced the capacity for UK households to save money.

Then you throw in the challenges of the cost of living crisis and you could feel like throwing in the towel and just giving up on saving altogether.

However, this subject cannot be ignored, especially when you think about the implications that it has on our future goals, for example, retirement.

Should I Get a Stocks and Shares ISA?

Yes, you should, especially if you plan to build wealth through the stock market for a period beyond 5 years from now.

Let's now talk about why you should prioritise your Stocks and Shares ISA savings now more than ever.

1. £20,000 allowance. Use it or lose it

You get a £20,000 allowance per tax year to save and invest in your stocks and shares ISA.

If you're a couple that's £40,000 a year and with every new tax year, if you don't use up this tax allowance, you will lose it.

This isn't to say that you have to use up all of your tax allowances but try to do as much as you possibly can within the tax year.

2. Tax-free Benefits

Your stocks and shares ISA is an environment where you can invest your money without any taxes being levied at all.

You don't get any capital gains tax, no income taxes (e.g. on interest or dividends). This account is gold.

This account is particularly suited to people who have an investment horizon of more than five years.

So if you're building wealth, you're thinking long term and you want your money to beat inflation, then you want to put money into stocks and shares ISA.

One thing I find particularly encouraging when I think about my stocks and shares ISA is to run some scenarios.

Use a compound interest calculator.

You can then make some sensible assumptions.

For example, imagine that you invest the full £20,000 per annum allowance but you had a 10k savings right now.

Let's further assume you're investing 20k per annum over the next decade with an 8% average return.

The image below is a projection of the future value of your investment will be i.e. £329,200.

You would have put £200,000 (£20,000 per year over 10 years) with your initial £10,000 allowance.

A whopping £119,160 will be the additional returns that will come from compounding.

This is of course a hypothethical example as most people can't save and invest the full £20k allowance.

But the main point is that you should get a compound interest calculator and play around with scenarios based on the savings that you could make realistically on a monthly basis.

This will help to keep you motivated to try to save more into stocks and shares ISA and see your money invested.

Recommended: Super Simple Investing course

3. Flexibility and Liquidity

A stocks and shares ISA offers you the flexibility to take your money whenever you want if you needed to.

This is particularly important if you choose to retire earlier one day, either down to choice or down to necessity for example, due to ill health.

Your Stocks and shares ISA complements your pension and in some cases, should be prioritised over your pension savings depending on your goals.

4. New Tax Changes

The tax year of 2023/24 introduced massive tax changes in the UK.

One of those changes is to the Capital Gains Tax (CGT) allowances we get.

We used to get a tax-free allowance of £12,300 per year, however, this has now been cut down by 50% to £6,000 in 2023/24.

The following year, that's dropping to £3000.

This will have a huge impact on people.

It just feels like there is a general attack on every attempt to build wealth in the UK. Thoughts? comment below.

In addition to that, the tax-free dividends allowance of £2000 has also been halved to £1000 in this tax year.

And then it's going to be halved further to only £500 2024/25.

This means that now more than ever, it's very important to have your money growing in a tax-efficient environment like a Stocks and Shares ISA.

Remember with stocks and shares ISA, dividends don't get taxed.

In addition, any gains you get from your investments at the moment (I should stress!) do not get taxed.

This is also important for people who have cash ISA and might be thinking of long-term wealth building.

You want to be thinking about potentially shifting your cash ISA balances to a stocks and shares environment.

The key point is really to get your money into a tax wrapper so that you are protected from these new tax changes.

5. Impact of Rising Interest Rates

With rising interest rates, you're far more likely to exceed the amount you can earn in tax-free interest on savings outside your ISA.

Basic-rate taxpayers can earn up to £1000 in savings interest per year with no tax.

Higher-rate taxpayers can earn up to £500 in savings interest per year with no tax.

So the more of your money you have in a tax-free ISA the better.

6. Potential £100,000 Lifetime Cap to ISA

This next one is literally going to be an utter disaster if they made this happen.

There's some research by the think tank Resolution Foundation that ISAs should be capped at £100,000 tax-free limit.

This has not become a law yet, but it is a recommendation.

According to their research, they believe that only the wealthy benefit from saving in an ISA. I'd love to read your reactions to this in the comments.

Do you believe that only the wealthy benefit from ISAs?

I completely disagree.

Hard-working people on average incomes, low, medium, and higher incomes, are all trying to build wealth over time.

But the way the system is set up in the UK, it's almost as though they're always trying to hold people down.

They're always trying to take away every single attempt for people to build wealth and it's frustrating.

It feels like an attack on people who are not mega-rich, mega-wealthy, or anything like that, who are trying to get by and build wealth in between.

They suggested that if they implemented this idea, based on research, it will net the government £1 billion per year in tax receipts.

Essentially, they want to cap the ISA allowance, tax-free to £100,000.

And then beyond that, any stocks and shares ISA gains will be taxed as capital gains.

Any interest on cash ISAs will be taxed based on income tax.

The data shows that the UK is pitifully below G7 from an average household Savings Rate perspective:

So, capping the ISA at £100k tax-free won't improve this picture.

In case you're reading this and thinking “rich people's problems”, I'd say don't.

You read our content because you're trying to:

• develop your skills
• get a promotion,
• grow your income,
• build some wealth, etc

All these things mean that you're trying to advance yourself.

So the chances are, your circumstances will change.

We expect you to become wealthy over time, but if they place a glass ceiling over you, and put that cap on, what motivation do you have?

What we are saying here is to prioritise your ISA today more than ever.

Right now, I might be speaking to a minority of people, because when we did a poll, only 6% of people had savings, over £100,000, and 7% have between £50,000 and £100,000.

But this picture will change with people working smarter and advancing themselves for the future.

This is the time to prioritise saving in your ISA, particularly your stocks and shares ISA.

Get your money into a tax-free environment, because we don't know how they're going to apply this rule (if they do) i.e. whether it will apply to people who have balances over £100,000 or not.

Conclusion

Hopefully, this has encouraged you to continue to prioritise your ISA savings and investing.

In our experience, the biggest motivator to continue to invest for the future is to have a why for your savings.

The more that you can connect a why to your monthly savings, the more you will be motivated to earn more, save more and invest more into your stocks and shares ISA.

What To Read Next About the Stocks and Shares ISA:

• How To Invest In Stocks With Confidence: Step-by-Step For Beginners
• Open a Stocks and Shares ISA here
• How to Invest In Stocks For Dividend Income
• 7 Ways To Reduce Your Tax Legally In The UK

What To Watch Next Next About the Stocks and Shares ISA:

Are you currently prioritising investing in a Stocks and Shares ISA? If not, why not? Jump in the comments and let us know.

Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.