Individual Savings Accounts (ISA's)
Individual Savings Accounts (ISAs), like their predecessors Personal Equity Plans (PEPs) and Tax Exempt Special Savings Account (TESSAs), were introduced by the Government to encourage savings by offering tax incentives.
Some important changes apply to ISAs from 6 April 2008. ISAs were introduced in 1999 for an initial period of 10 years and the Government has announced that this period will be extended indefinitely.
Other changes affecting ISAs are:
- the investment limit raised from £7,000 per tax year to £7,200
- there will now be just two categories the cash ISA and the stocks and shares ISA
- up to £3,600 can be held in cash, with the balance in stocks and shares. Where no cash ISA is held the full allowance can go into stocks and shares
- savers investing in both categories of Individual Savings Account will have the option of investing in two separate ISAs each tax year, one for each category and these can be with the same or different providers
- Mini and Maxi ISAs will no longer exist: Mini cash ISAs, TESSA-only ISAs and the cash component of a Maxi ISA will automatically become cash ISAs
- Mini stocks and shares ISAs and the stocks and share components of a Maxi ISA will automatically become stocks and share ISA
- all PEPs will automatically become stacks and shares ISAs
- cash held in ISAs at 5 April 2004 can be transferred into stocks and shares without it counting as the current year's subscription
- money held in Child Trust Fund accounts will be able to be rolled over into an ISA when the child reaches 18
All the tax benefits of ISAs continue; namely:
- exemption from capital gains tax on profits
- reclaim of income tax on interest on cash and fixed interest stock (this is done by the ISA manager on your behalf)
- higher rate tax payers pay less tax on dividend income than they would if they held the shares outside an ISA
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