Individual Saving Accounts (ISA's)
Individual Savings Accounts (ISAs) were introduced by the Government to encourage savings by offering tax incentives.
The salient points are:
- The investment limit is now £10,680 per tax year.
- The rate of inflation in September will determine the ISA threshold from the following April.
- Up to £5,430 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
- Cash held in ISAs can be transferred into stocks and shares ISAs without it counting as the current year's subscription, but not vice versa.
- All previous Mini and Maxi ISAs, TESSA-only ISAs and PEPs automatically became new style ISAs when the regulations changed.
- Money held in Child Trust Fund accounts will be able to be rolled over into an ISA when the child reaches 18
The tax benefits of ISAs are:
- 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