The Budget disappointed millions of investors with its news about ISA limits. The chancellor announced plans yesterday (31 October) to keep the annual allowance for ISA contributions the same until at least the next decade.
Given the impact of inflation, that likely equates to bad news, meaning an annual cut in the ISA allowance for years to come, in real terms.
Still, I think an ISA can be a useful investment tool. I hold a Stocks and Shares ISA and the annual contribution limit here will remain at £20,000. For many investors, that is plenty.
So here is how I plan to react to the news that the ISA limit is now set to be frozen for years to come.
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Focus on the positive potential
A lot of people do not even contribute their full ISA allowance each year as it stands. So whether or not the limit goes up could make no difference to them in practice.
The Budget has been a good prompt for me to consider how I can make the most of my existing ISA allowance. Even at £20k, it offers me substantial opportunity to invest in the stock market in a tax-effective manner.
Keeping money inside an ISA wrapper
A frozen limit has also reminded me of the value of keeping money inside an ISA once it is there. Specifically, if I earn dividends or make capital gains by selling shares for more than I paid for them, I could be tempted to withdraw that money from the ISA wrapper.
But while they stay inside my Stocks and Shares ISA, those funds enjoy tax benefits. Once I take them out, if I want to put the same amount back in again in future, I will be using up part of my ISA allowance.
By taking a smart approach to this, I could potentially be able to invest more than £20k through my Stocks and Shares ISA in any given tax year, even though I do not exceed the annual £20k allowance for new contributions.
Building wealth by buying great shares
Once the dust settles on the Budget – and long afterwards – I will be doing what I always do. I will try to build wealth by stuffing my ISA with great shares I buy at attractive prices, then hold for the long term.
As an example, one UK share I have bought this year is Filtronic (LSE: FTC). The share price has surged 759% over the past five years. So it may not seem like I am getting much of a bargain buying in 2024.
But I think the firm might just be getting going. This year has seen a number of contract wins with SpaceX. In fact, the business is seeing such demand that it added a second production line over the summer and expects to add another this month.
Over-expansion can be costly if customer demand then falls and this is a risk for Filtronic. But I think the SpaceX contracts could be a game changer for the business.
It has retrofitted SpaceX’s gateway links in the US company’s existing Starlink satellite network as well as providing new ones with components. As Starlink expands, that could mean more orders for Filtronic — and a strong usage example to help attract other clients.
This post was originally published on Motley Fool
