Introducing the Rosecut ISA
While a ‘Cash ISA’ is simply a tax-free savings account, a ‘Stocks and Shares ISA’ is a tax-efficient investment account, which lets you put your money into a range of investments without the profits/losses being subject to any UK tax. Let's break things down:
What is an ISA?
Since launching Rosecut, we’ve been keen to add the most tax efficient wrappers so that your money can work as hard for you as possible. We are delighted to offer the Rosecut ISA to our UK based clients. This enables your investments to be held within a tax efficient wrapper that is often referred to as a Stocks and Shares ISA.
The ISA wrapper shields any capital gains from tax, as well as most income produced; regardless of whether it is classed as dividend income or interest. We say ‘most income produced’ because there can be exceptions, such as dividends on direct US stocks, but we don’t hold those in Rosecut portfolios.
Investments held within, have the same easy access as investments held within our existing general investment accounts (GIA), although if you make any withdrawals, you may lose part of the current annual allowance and no additional cost is incurred by placing your investments in a Rosecut ISA.
Why have we done this?
The Rosecut app already allows you to carry out some financial planning such as building a personal wealth balance sheet. The app also gives free generic guidance on questions like how much cash to keep aside as an emergency fund.
Where suitable, you are also able to invest into professionally managed portfolios to meet your long-term financial goals.
We wanted to make this portfolio management service available within tax-efficient wrappers such as ISAs and SIPPs. We made sure we created the Rosecut ISA first to help our clients with this.
The ability to keep investment returns shielded from tax, whilst being easy to access (unlike a pension which cannot be accessed normally until the age of 55) is a big draw. Particularly to those who have ambitions of early retirement and want to be able to access funds before turning 55.
The subject of when to use a pension versus an ISA is covered in another article from our financial planning expert Poppy.
What the Rosecut ISA is:
It is a type of 'Stocks and Shares ISA' meaning it can hold any of the exchange traded funds (ETFs) or active funds we invest into. This applies to both discretionary portfolios, and the execution only thematic holdings. Despite the references to stocks and shares, they can also be used to hold bond and commodity ETFs.
Whilst your Rosecut ISA can theoretically grow to any size over time - which will be dependent on how many years you add money to it, and the investment returns...In any one tax year, there is a limit to how much you can add. In 2021/2022 you can contribute a maximum of £20,000, which has been extended to the new tax year 2022/2023. This allowance does not roll over to the next year if unused, so it is important to utilise as much of the ISA allowance as possible.
If it only available to UK residents. If you move abroad, you can keep your existing ISA accounts open, but can no longer contribute new funds to it.
What the Rosecut ISA is not:
It is a not a 'Cash ISA' - running cash products is not something we focus on. The Rosecut ISA is for holding investments within.
It is not a Lifetime, Help-to-Buy or other random new government initiative ISA...honestly we don't mean to poke fun, but in recent years we've seen all sorts of new types created and it's started confusing people. We are big fans of simple yet effective measures. In our opinion, the original 'Stocks and Shares' wrapper is still the best option for the majority of people.
It is not a current account. Yes, it is easy to access if you need funds but like many investments, it should be seen as one for the long-term. Ideally, you should not be adding money and withdrawing it again to meet short-term spending needs. From a tax efficiency point of view, withdrawals will not be added back to your allowance, effectively removing a great benefit from investing in the Rosecut ISA.
How do you open a Rosecut ISA?
There are three ways you can fund one.
By sending new money - in the same way you can open or add to a General Investment Account (GIA).
By transferring an existing ISA, as we will cover in the next section; or
By transferring assets held outside a tax wrapper, for example those held in a GIA, and allowing us to place them inside an ISA (a process in the industry sometimes called 'Bed and ISA'. This way could result in a potential Capital Gains Tax (CGT) charge.
Transferring ISAs:
It is much easier to have your ISA accounts consolidated, and professionally managed. When it's not your day-to-day job, it's difficult to find the time to sit down and do a proper review of your investment performance, macro research, fund selection etc.
Transferring an ISA is straightforward. You can move any ISAs you have between providers, whenever you want. That means to view all your accounts in one place is easier to do so.
There are some complications to be mindful of, one of which are partial transfers. If you are looking to transfer an ISA you have funded in the current tax year, you wold have to transfer all of the contributions you made this year - you cannot do a partial transfer.
Another is when you transfer your ISAs, there may be a time when your funds are not exposed to the investment markets. This can be both to your advantage (if the market falls) and disadvantage (if the market rises) during this time. One way to mitigate this is by utilising in-specie transfers, where your investments are transferred to the new ISA Plan Manager and never sold.
If in doubt, just drop us an email and we can talk you through it.
When is the best time to open a Rosecut ISA?
The UK tax year runs from the 6th of April to the 5th April the following year. A lot of people leave funding their ISA until the last few weeks of the tax year. This is less optimal. When possible, it is better to fund as early as possible so that your investments are excluded from income and capital gains tax for the longest time.
Last year, we had a stock market sell-off in March and for long-term investors we believe this remains an attractive entry point.
For those holding Cash ISAs - we believe that interest rates are unlikely to move materially higher in the near term as the world deals with the after-effects of Covid-19 and therefore there is just not that much of a return to save.
Whilst this is fine for people who value the low volatility of cash returns, it is not so good for other people who are trying to earn a return above inflation. If you have an existing Cash ISA and are comfortable placing your investment at risk, it is possible to convert this into a 'Stocks and Shares' ISA, without losing any of the tax benefits.
As ever, this is only if it is suitable within the context of your overall financial plan. We would welcome a chat with us if you have any questions.
Please note that this is not financial advice, and it does not a take into account your individual circumstances. Please also contact a professional advisor prior to any decision making.
The Rosecut ISA is managed by our custodian WealthKernel Ltd.
Tax benefits may vary as a result of statutory charges and their value will depend on individual circumstances. Specific risks associated with particular investments are details on this website and in our printed literature. You should consult with a professional tax advisor for any tax advice and support.
The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies. You should be aware that past performance is no guarantee of future performance. ISA rules apply.
