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?
You can invest up to £7,200 in a single tax year – this went up from £7,000 in April 2008. The tax year runs from April 6 to April 5 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 £72,200 from the taxman – including the new 2008-2009 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.
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
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. The remainder of your £7,200 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 £7,200 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 £72,200 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.
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