Category: Investing philosophy

This post is late.

More than six months late.

The UK’s tax-free savings accounts (ISAs) operate on an annual cycle. Each tax year, starting 6 April, a UK tax payer gets another £20k annual allowance. ISAs are the tax wrappers that administer this allowance. Any account in an ISA wrapper sees all its gains and income become tax free – not even disclosable on a tax return. You can put most type of investment into ISA accounts, certainly including UK/US/EU listed securities. That makes a “stocks & shares” ISA account the number one fundamental of UK taxpayers’ investing, aside from (in some cases) a pension.

£20k might not sound like that much, but if you have £20k to play with as a 20 year old, and you invest it in equities under an ISA, and always reinvest returns, you can expect your investment to appreciate very significantly. At 7% average return it will double every ten years. So by the age of 60, four doubles later, that original sum would be worth £320k (before taking into account inflation). Now imagine that at age 21 you have a fresh £20k to play with. And at age 22. And so on.

I only realised how imperative ISAs were about 15 years ago. But since then I have made topping up my ISA accounts for both myself and Mrs FvL an annual imperative. I try to do this as early in the tax year as I can – in fact I usually start hoarding cash a few months before the start of the tax year in April. And I typically publish a blog post when I achieve it. This tax year, this is that blog post. It has taken me until December to scrape up the £40k readies.