YES, says Adrian Lowcock, Senior Investment Adviser, Bestinvest
"Governments don't generally offer many tax breaks, and with cash Isas offering tax-free returns and Stocks and Shares Isa also offering significant tax advantages, they should be considered a first port of call for the average investor.
There's no capital gains tax on Isa funds. Sceptics might argue that you're hardly likely to accrue a £9000 gain on a £7200 investment, but over longer periods, capital gains become more of an issue.
And while dividend income may still be subject to 20 per cent taxation, interest on cash and corporate bonds is paid gross. For example, a higher rate tax-payer receiving £100 interest from a corporate bond would see this reduced by £40 outside of an Isa, but not a single penny is taken if it is wrapped up inside an Isa. As we enter a world where income is becoming the driving force behind returns, the tax benefits on income can be huge, increasing returns by up to 100 per cent. Income can be paid out free of any additional tax, making it very attractive to those looking to get the most out of their income.
The tax advantages of Isas are likely to be thrown into ever sharper focus in the coming years. Having committed so much money to bailing out banks and priming the economic pump, any government is going to be looking for new ways to increase the tax take to rebuild the public finances.
Accessibility is also very important, and investors can cash in their Isa investments relatively easily. Along with online share dealing and fund supermarkets, Isas have helped drive down the cost of investing for ordinary people. There are usually no administrative costs associated with the Isa wrapper itself.
You can also still take advantage of your Isa allowance even if you have no new funds to invest, by bringing other investments inside an Isa wrapper, a process known as 'Bed and Isa'.
In conclusion, there are many advantages to using an Isa wrapper and no disadvantages, so whilst you can debate the extent of the relative merits you might as well use the wrapper and worst case scenario you end up in the same situation if you hadn't used it."
NO says Jason Witcombe, chartered financial planner at Evolve Financial Planning:
"Isas are still worthwhile and we encourage almost all of our clients to make use of them, but their real effectiveness has been steadily diminishing, particularly when compared to the previous Pep and Tessa regime. The only failing of Peps seems to be that they were a Tory creation. Labour needed something new - and so Isas were born.
Another problem is complication. Savers have had CAT and non-CAT, Maxis and Minis, Cash and Stocks & Shares versions and insurance components within Maxi Isas to contend with. You can now transfer a Cash Isa to a Stocks and Shares Isa but not the other way round. It's no wonder that people are confused. Complication invariably leads to inaction. If Isas were simpler, there would be greater take up.
Isas have also been caught in Mr Brown's fiscal dragnet. The annual allowance recently rose to £7,200 but in real terms, it has been falling since 1999. A £200 increase was meaningless. Lifting the allowance to £9,000 for a Stocks and Shares Isa and, perhaps even allowing a £3,000 Cash Isa in addition to this, would seem fairer. After all, the Pep allowance was £9,000 a year when you added in Single Company Peps. I'd wager that the only reason the allowance even rose was because £7,200 is divisible by twelve. Paying in £583.33 a month was just more complication.
Since April 2004, it has not been possible for Isa managers to reclaim the 10 per cent tax credit on dividends from UK equities. This reduces the effectiveness for basic rate taxpayers, particularly when you consider that you can't offset any capital losses within an Isa against gains elsewhere.
As a nation, we are becoming increasingly risk averse and the recent fate of the stockmarket has done nothing to help this trend. Yet history tells us that risk takers are generally rewarded over the longer term. The demise of final salary pensions is a stark reminder that if you want a financially secure retirement you need to fund this yourself. A simpler and more generous Isa regime that favours "Stocks and shares" investment would help to achieve this."
