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Financial > Investments > ISAS
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ISAs - Individual Savings Account
This type of scheme shelters your savings and investments from both UK Income Tax and Capital Gains Tax.
Any withdrawals that you make from your ISA are also free from Income Tax and Capital Gains Tax, so they don't have to be declared on a tax return.
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You can start to use an ISA for cash savings from the age of 16, and from the age of 18 years for investments such as stocks, shares, collective investments like unit trusts, open ended investment companies, investment trusts, gilts and bonds.
Investments tend to grow more quickly than cash deposits over longer periods of time.
The tax concession provided by an ISA is clearly very valuable to savers and investors, and so Her Majesty's Revenue & Customs ration the benefits each year.
ISAs can hold two types of asset; A stocks and shares component and a cash component. The maximum amount that you can put into an ISA in any tax-year is now £7,200 and all of this can be invested into the stocks and shares component. If you want to use your ISA to avoid Income Tax on the interest earned by your savings you can put up to £3,600 of the overall subscription limit into a cash component, but this is not very attractive at the moment because interest rates are low and likely to fall further in the next few years.
In the past there were specific limits for cash ISAs and for stocks and shares ISAs but it is much more flexible now. The annual limit is £7,200 per person and whatever part of that is left after you have saved money within a cash component is available for your stocks and shares component. These ISA components can be with the same organisation as each other or not, as you prefer, because HMR&C can track how much of the ISA allowance you have used through your National Insurance number. Please remember though that you can not subscribe to two ISAs of the same type in the same tax year, for example two stocks and shares ISAs or two cash ISAs.
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Before the ISA became available in 1999 there were 2 different types of tax sheltered savings and investment schemes.
Cash investments could be held in a tax-exempt special savings accounts, known as a TESSA, and investments could be held in a Personal Equity Plan, known as a PEP. Those investments had time limits on them, but there are no time restrictions - either minimum or maximum - applying to ISAs.
When a TESSA matured, savers were allowed to transfer all of the cash they had paid into their TESSA into a TESSA only ISA (TOISA) but all of the interest earned had to be taken out.
If you had a PEP in the past there were restrictions affecting the investments that you could choose, but those have now been lifted so the rules are exactly the same as they are for an ISA.
For investors with PEPs who wanted to change the manager, they were allowed to transfer the entire proceeds of their PEP into either a PEP transfer plan or alternatively an ISA and there was no requirement for the profit to be removed.
New For 2008
You will be able to switch some or all of your mini cash ISAs into equity ISAs using a transfer plan, from 6th April 2008. Please remember though that this is 'one way traffic' - you will not be able to move back out of equities into a cash ISA. If you want to go back into cash, there will be no ISA tax shelter on that money for the future.
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