What is an ISA?
Any individual who is an income tax payer and has some money to save or invest should know about Individual Savings Accounts (ISAs). Available since April 1999, ISAs offer an attractive tax-free shelter to anyone aged 18 or over (16 or over for cash ISAs).
With standard bank and building society savings accounts taxpayers normally have to pay tax on any interest earned on their money. The tax is deducted from the interest before it is paid out, reducing the amount received. Similarly, tax must be paid on the income and profits made from investments in the stock market like company shares or unit trusts.
However, ISAs serve as a kind of 'wrapper' to protect savings from tax, allowing individuals to put away a maximum of £10,200 (in the 2009/2010 tax year) in a range of savings and investments and pay no personal tax at all on the income and/or profits received.
The main ISA benefits are:
There are two types of ISA:
All of your allowance can be invested in stocks and shares, or you can split it by investing up to £5,100 in cash (the maximum permitted) and the remainder of the £10,200 in stocks and shares with either the same or a different provider.
You will also be able to transfer money saved in previous years' cash ISA holdings to stocks and shares ISAs without affecting your current year's allowance. It should be noted that it will not be possible to transfer in the opposite direction i.e. stocks and shares ISA to a cash ISA.
To be eligible to invest in an ISA, an investor must be an individual (i.e. not a company or trustee) who is 18 years of age or over and who is resident and ordinarily resident in the UK (or is a Crown servant serving overseas or the spouse of such an individual who accompanies their spouse abroad).
When an individual ceases to be eligible to invest in an ISA, any existing ISAs will continue to be exempt from UK tax, but future contributions to regular investment ISAs must be terminated and no further single contributions may be made.
Each individual may affect a stocks and shares or cash ISA each tax year. A husband and wife are treated as separate individuals so that although joint ownership of an ISA is prohibited each may fully subscribe to one in their own name.
Stakeholder standard ISAs
Stakeholder standard ISAs are those which meet Government guidelines regarding cost, access and terms. Both types of ISA component can qualify for a Stakeholder standard. The cost limit varies with each investment type and the access and terms criteria specify that investors must be able to get their money back at any time without penalty and with no other restrictions.
For more information on how we act on behalf of our clients, our payment structures and terms please read our Retail Client Agreement (here).