|
Individual Savings
Accounts (ISAs)
ISAs were introduced on 6
April 1999 to replace Personal Equity Plans (PEPs) and Tax Exempt Special
Savings Accounts (TESSAs). ISAs now incorporate both PEPs and TESSAs.
ISAs can consist of up to two
components:
·
The stocks and shares component. This can
include virtually all quoted securities, as well as unit trusts, shares in
Open-Ended Investment Companies (OEICs) and Investment Trusts. The quoted
securities allowed include equities listed on any Recognised Stock Exchange.
You can also invest in corporate bonds, as well as government securities issued
by a European Economic Area government.
·
The cash component. This can be invested in bank
or building society deposits and certain money market unit trusts.
Whilst no transfers are allowed from
stocks and shares to cash, it is now permissible to transfer the cash component
to a stock and share ISA.
There are two types of individual
savings account:
·
A stocks and shares ISA, which must have a
stocks and shares investment component and may also include a cash component. In practice, many ISAs only contain the
stocks and shares component. The maximum that may be invested in a stocks
and shares ISA in the current Tax Year is £7,200, made up as follows:
- Up to £3,600 in any cash component.
- The balance, up to the overall £7,200 maximum, in
the stocks and shares component.
·
A cash ISA, which can only provide the cash
component up to a maximum of £3,600.
If you choose a
cash ISAs and wish to maximise your investment, you must invest in two separate
ISAs during the tax year, covering the two investment components. You cannot
invest the full allowances in both a cash ISA and an investment ISA.
ISAs will have several
major tax advantages until at least April 2010:
·
Freedom from capital gains tax.
·
Freedom from income tax on interest from
corporate bonds and dividends from foreign securities.
·
Freedom from income tax on interest earned in
the cash component (any deposit
interest earned in the insurance or stocks and shares components is subject to
20% tax).
These mean that the
investments should grow faster.
You are free to draw from
your plan at any time without adverse tax consequences.
The Government has
established voluntary standards, called CAT standards, for investment ISAs. CAT
standards do not represent a government seal of approval, but merely signify
that the ISA has met certain minimum conditions for charges, access and terms.
The main requirements are:
·
Charges: Total charges must be no more than 1%
per year. No initial or other charges may be levied.
·
Access: The ISA manager must accept minimum
contributions of no more than £50 per month or £500 as a lump sum.
·
Terms: The investment funds must be open-ended
investment companies (OEICs), authorised unit trusts or investment trusts with
gearing of not more than 10%. At least 50% must be invested in EU listed shares
or securities.
Most major Fund Managers do not offer CAT standard ISAs because the CAT
rules are too restrictive. Unless stated otherwise, the ISA recommended in this
Report is not CAT standard.
verse tax consequences.
|
