3 reasons why Stocks and Shares ISA demand might rocket!

The popularity of tax-efficient products like Stocks & Shares ISAs could be about to soar. Here are several reasons why investor interest might pick up.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The number of Stocks and Shares ISA investors has rocketed over the past decade. And there are good reasons to expect demand for these tax wrappers to rise in the next tax year. Here are three of them.

#1: Interest rates should fall

The returns that cash savers have received since late 2021 has been steadily rising. As the Bank of England (BoE) has increased its benchmark rate, the rates on traditional savings products have followed higher.

Interest rates on savings accounts remain weak by historical standards. Moneysupermarket.com says that the best-paying, no-notice Cash ISA (offered by Leeds Building Society) currently has a rate of 2.25%. Yet the relative ease, and the safe-haven quality of these products, means their appeal has risen as rates have trekked higher.

But this could be about to change later in 2023 once the BoE likely stops raising interest rates. In fact, the market believes policymakers might start reducing its benchmark around the middle of the year as inflationary pressures recede.

The returns from savings accounts might start to fall away again from the 8% long-term average return that share investors enjoy.

#2: Non-ISA allowances to drop

Demand for Stocks and Shares ISAs should also benefit from upcoming changes to dividend and capital gains tax (CGT) allowances.

The CGT allowance stands at £12,300 for individuals and personal representatives today. But this will plummet to £6,000 from April and then to £3,000 in 2024’s tax year.

The current dividend allowance of £2,000 will also fall to £1,000 next year and then to £500 in the 2024 tax year.

Tax isn’t something that ISA investors need to worry about. These tax wrappers allow individuals to stash up to £20,000 away each year without having to worry about HMRC grabbing a slice.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

#3: ISA allowance to rise?

Finally, ISA adoption could also pick up if the government decides to raise that £20,000 annual deposit limit. Allowances haven’t been raised since the 2017/2018 tax year. And some argue that this is long overdue.

Again, one reason for this is high inflation. The rate at which prices are rising means that £20,000 saved in a Stocks & Shares ISA today is worth less in real terms that it was a year ago. Elevated levels of inflation are tipped to persist for some time too.

A growing State Pension crisis might also prompt a rise in the ISA threshold. The government is placing an increased onus on individuals to save and invest for retirement to help the public finances. Increasing the ISA allowance might be a way to encourage people to do this.

Why I use an ISA

I use a standard Stocks and Shares ISA to invest in UK shares. I’ve invested, for example, in dependable, cash-generative FTSE 100 companies including Unilever, Diageo and Coca-Cola HBC. I’ve also gained exposure to fast-growing industries like green energy by acquiring shares in The Renewables Infrastructure Group.

Furthermore, I’ve sought to capitalise on lucrative emerging markets with shares like Asia-focused Prudential and mega miner Rio Tinto.

Balanced portfolios like mine can significantly boost my chances of making long-term wealth. And doing so within a tax-efficient ISA can help to really boost these returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has positions in Coca-Cola Hbc Ag, Diageo Plc, Prudential Plc, Renewables Infrastructure Group, Rio Tinto Group, and Unilever Plc. The Motley Fool UK has recommended Diageo Plc, Prudential Plc, and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

These FTSE 100 stocks are making a joke of the S&P 500 — but I’m eyeing more ‘rational’ options

Many FTSE 100 stocks are soaring ahead of their S&P 500 rivals in 2025 but Mark Hartley’s looking for some…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

The Nvidia share price hit an all-time high this week. But could it still be a bargain?

The Nvidia share price has soared 1,466% in just five years. This writer reckons the best may yet be to…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How much does someone need to invest to target a second income of £15k – or £150k?

A second income from dividend shares? It's a well-worn path -- and this writer sees some attractions to the approach.…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could the stock market crash in the second half of 2025?

As the FTSE 100 hits a new high, could a stock market crash be coming? Our writer thinks there's a…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

Start investing this summer with a spare £250? Here’s how!

Christopher Ruane explains how an investor with a few hundred pounds to spare and no prior experience could look to…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Is Palantir stock the new Nvidia? Why UK investors should (or shouldn’t) care

Palantir stock’s the top performer on the S&P 500 this year. Should UK investors consider it amid a blistering AI-fuelled…

Read more »

Investing Articles

3 FTSE 100 shares I think look undervalued

The FTSE 100 may be hitting record highs but there are still bargains to be had on the index. I…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how to target £841 of passive income each month

Passive income plans don't need to be complicated. Our writer explains how someone could target a sizeable second income buying…

Read more »