ISAs
Individual Savings Accounts (ISAs) are available to all UK residents over 18 yrs of age (or 16 years of age if taking out a Cash ISA). They benefit all taxpayers, especially those paying the higher rate.
They're the latest Government scheme to stop the taxman getting his hands on your savings, replacing PEPs and TESSAs, but if you have one of these don’t worry, as they have now been re-classified as ISAs.
You can invest via a number of components within an ISA; cash, stocks and shares to include unit/investment trusts, Open Ended Investment Companies (OEICs), Gilts (bought with at least 5 years until maturity), or any share quoted on a stock exchange recognised by the HMRC.
The rules
Since April 6 2007 the distinction between maxi and mini-Isas has been removed and replaced by stocks and shares Isas and cash Isas. The maximum annual investment limit has been lifted to £7,200. It will rise again to £10,200 from April 6 2010. For those aged 50 or over the raised limit will apply from October 6 2009.
You can put the entire allowance into stocks and shares, or you could divide it between a stocks and shares Isa and a cash Isa, though the maximum that you can put in a cash Isa is £3,600 (£5,100 when the raised limit applies)
The tax breaks
Interest on cash Isas is paid without deduction of tax, while investors in fixed interest can claim back the 20 per cent tax on their interest payments.
Share investors can no longer claim back the 10 per cent tax credit on dividends, so non-taxpayers and basic-rate taxpayers are no better off, from the dividend point of view, than they would be outside an Isa.
However higher-rate taxpayers still benefit from being inside an Isa because they have no additional tax to pay, as they would outside an Isa.
All capital gains are tax-free.
Legislation relating to Individual Savings Accounts is subject to change.
See Also:
Self Select ISAs