ISA – Individual Savings Accounts

An ISA is a UK investment that has certain tax advantages. Most ISA’s are flexible enough for you to be able to contribute either on a regular basis, a lump sum or a combination of both.

ISA’s were introduced in April 1999 in order to replace PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Accounts). If you already hold a PEP from before this time, it is unaffected, but you cannot make any additional contributions. It is still possible to transfer PEPs between providers.

Eligibility for an ISA

To be eligible you must be over the age of 18 (or 16 if for a mini cash ISA) and resident in the UK for Tax Purposes or an employee of the crown and paid by the Government whilst working abroad.
An ISA must be owned by an individual and it is not possible to own jointly or on behalf of another person.

Dealing with Different ISA Providers

It is possible to transfer between ISA providers; however it is now possible to use a facility called a fund supermarket that gives access to a broad range of funds from many fund management groups. You can transfer monies either in whole or just part of the investment. If you wish to transfer monies that have been invested into the current tax year then you must transfer all of the investment proceeds for that year.

If you are required to complete a UK tax return, then there is no need to put the information relating to ISA’s on your tax return
In the event of your death then the value held within any individual Savings accounts in your name will be added to your estate for UK inheritance tax purposes.

Limits on ISA Investment

You can currently invest up to £7,000 in the current tax year in an ISA. Up to £3,000 of this can be cash and the balance invested in stocks and shares. You can, however, if you wish, invest the whole amount in a stocks and shares maxi ISA.

Please note that if you want to invest more than £4,000 into stocks and shares, you must take out a maxi ISA

Taxation

Any investment returns that are received are mainly tax-free, however since April 2004, income from equities or equity (share) based unit trusts held within an ISA will have a tax of 10% deducted and this unfortunately is not possible to reclaim.

However, any income from cash and fixed interest funds are classed as paying interest and the fund can reclaim a tax credit of 20% internally. This does not apply to the investor.

For information on the latest rates for mini cash ISA’s please click here

If you are considering investing it is important to remember that the value of your investment and the income generated could fall as well as rise and that there is no guarantee you will get back more than you invested.