ISAs Explained
Individual savings accounts (ISAs) were introduced in April 1999. They replaced
Tessas and Peps and are effectively a tax wrapper within which you can hold a range
of different investments. The big advantage of ISAs is that returns are tax-free
– gains on investments held outside an ISA are liable to income tax or capital gains
tax.
ISAs offer a generous tax break but millions of savers fail to make use of their
annual allowance. In a bid to encourage more people to invest in ISAs, the government
has simplified the rules and increased the amount you can save tax-free. This guide
should also help.
How
much can I invest?
The big advantage of ISAs is that returns are tax-free – gains on investments held
outside an ISA are liable to income tax or capital gains tax
Savers under the age of 50 can invest up to £7,200 in a single tax year – the over-50s
can invest up to £10,200. This was announced in the 2009 Budget and took effect on October 6th 2009.
This higher limit will apply to all savers from April 6th 2010. The tax year runs from
April 6th to April 5th and it is important to use as much
of your annual allowance as you can within that time as it cannot be carried over
into the next financial year.
ISAs were introduced in April 1999, so those who have made full use of their annual
allowances every year since then, will have sheltered £79,400 from the taxman
(£82,400 if you're over 50 and qualify for the new higher limit) –
including the new 2009-2010 allowance. And that figure doesn’t include capital growth,
so many people will have ISA investments worth far more than that, depending on
where their money is invested.
How
many ISAs can I have?
You can open one cash ISA and one stocks and shares ISA each tax year. Up to £3,600
can be invested in a cash ISA. (£5,100 for the over-50s since October 6th 2009).
The remainder of your allowance can be invested in a stocks and shares ISA. Alternatively,
you can just open a single stocks and shares ISA and invest the full amount in that.
ISAs were introduced in April 1999, so those who have made full use of their annual
allowances every year since then, will have sheltered £79,400 from the taxman
Various non-cash assets can be held within a stocks and shares ISA. These include
unit trusts, open ended investment companies (oeics), investment trusts, exchange
traded funds, shares or bonds.
Continue to Page 2 to Which is better – cash or stocks and shares? >>
