Individual Saving Account (ISA)
ISAs are not products in their own right, but simply a tax efficient wrapper for your savings or investments. Through them you can hold stock market based investments or traditional cash savings.
How do they work?
To reward savers, any interest earned on savings or bonds, and any capital gains made on investments wrapped up within an ISA are tax free. It doesn’t matter if you’re a lower, basic or higher rate taxpayer; the tax advantages are the same. Best of all, you don’t need to include your ISA information on your tax return, saving you another headache.
Are there any limits?
You need to be over the age of 18 to take out an investment ISA. There is a maximum investment limit of £7,000 in an ISA within a single tax year (from 6 April to 5 April the following year). To take full advantage of your tax-free allowance, there are two types of ISAs … known as Mini and Maxi ISAs.
What’s the difference between Mini and Maxi?
With a Mini ISA, you can save up to £3,000 in cash and up to £4,000 in stocks and shares. These can be any type of collective investments, including Unit Trusts, OEICs, Investment Trusts and Exchange Traded Funds.
If you envisage investing more than £4,000 in stocks and shares under the ISA wrapper, then go for Maxi. Under a Maxi ISA, you place all your investments with one provider. You can put the whole £7,000 into stocks and shares or you can place up to £4,000 in cash and the rest into the stock market.
Can I mix and match?
No, you cannot invest into both a Mini ISA and a Maxi ISA in the same tax year. With a Mini ISA, you can choose two different forms of investments – cash and equity ISAs, and these can be from different providers. But they must each be labelled as Mini ISAs. Remember, though, your partner can also invest in one, so as a couple you have an ISA tax allowance of £14,000.
What are the risks v returns?
The investment rewards and level of risk go hand-in-hand. Stock market based investments are not guaranteed and may fluctuate. However, any peaks or troughs should be averaged out through the duration of your investment.
Can I get at my money?
You can access your money at any time, but do remember, that dipping into your ISA fund, means using up some of that years allowance. So if you’ve a Mini Cash ISA, and reach your £3,000 investment allowance in August, withdraw £1,000 to pay for a holiday, you cannot top it back up until the next financial year.
What are the charges?
With cash ISAs, there are usually no charges. Equity ISAs may have an annual fee for investing your money in stocks and shares. That is usually deducted from the ISA itself. Check also that there are no exit penalties if you come out of the ISA arrangement early
Need more help?
ISAs sound complex because there’s such a wide choice available. Rather than considering them to be a product, think of them as the umbrella for your savings and investments, protecting you from incurring more tax. You can find out more by calling us.
Unit Trusts
Open Ended Investment Companies
Investment Trusts
Exchange Traded Funds (ETF)
Life Assurance Based Investments