THE rocky markets mean that many people who would normally jump at the chance to shelter their investments from tax using an individual savings account (Isa) are sitting on their hands this year.

With only two weeks left to make use of this year’s allowance, fund managers are bracing themselves for one of the worst Isa seasons ever.

However, advisers have warned that if you don’t use the £7,000 annual allowance by April 5 it is lost for good. They point out that there are ways for nervous investors to use the full allowance before next month’s deadline without ploughing it all into shares. Here we explain how.

What can I do if I am worried about committing cash to the equity markets but want to make use of my Isa allowance?

Many investment firms and fund supermarkets offer a phasing option, where your money is gradually invested over a number of months. As long as you buy the phased investment before April 5, it will still count towards this year’s Isa allowance.

Say you want to invest your full Isa allowance of £7,000 in an equity fund before the end of the tax year, but do not want all the money to go into the market straight away, your lump sum might be split into six equal amounts. The first £1,166.67 would be invested immediately and the rest in five equal amounts over the next five months.

I am worried that shares could fall in the short term. Is there any way I can keep all my allowance in cash and invest in shares later?

You can hold money destined for the stock market in cash with brokers including Hargreaves Lansdown, Killik and Halifax Share Dealing.

Fidelity Funds Network offers a Cash Park Isa for cautious savers. This allows you to secure your full £7,000 allowance without immediately committing the money to equity or bond funds.

As long as you intend to invest the money at some point in the future, the Revenue is happy for you to keep the money in cash. Some pay interest on your money – Cash Park, for example, pays a gross rate of 4.85%, although the Revenue insists that cash held in investment Isas is taxed at 20%, so interest is paid net. From April 6 you will be able to move money from cash Isas into equity Isas without it affecting your allowance for that tax year.

If you are particularly nervous you could therefore invest £3,000 in a cash Isa this year and then move into equities when you feel more confident.

Why should I bother with an Isa?

Over the years the government has chipped away at the benefits of holding an Isa. They have taken away the income-tax perks for basic-rate taxpayers who buy shares, for example.

However, top-rate payers still pay less income tax inside an Isa than out.

A higher-rate taxpayer who invested £7,000 in equities every year from 1999, when Isas were launched, to 2019 would end up with a pot worth £280,000 inside an Isa but only £264,000 outside, according to the Investment Management Association.

However, the biggest advantage of holding equities within an Isa wrapper is that any growth is not subject to capital-gains tax.

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