ISA stands for Individual Savings Account. These were introduced on the 6th April 1999. At that time the Government promised that ISAs would available for at least 10 years however as from April 2008 the Government is making ISAs available indefinitely. ISAs are designed to encourage savings and allow you to invest up to a maximum of £7,200 for the 2008/2009 tax year.

ISA’s are tax efficient accounts. This is to say that any ISA which are interest bearing are tax free. Equity based ISA’s that produce dividends are liable to a 10% tax credit. This means that although some ISA’s are no longer tax free they are still taxed more favourably than other savings and investments.

This is different to many other investments, such as ordinary bank or building society accounts. Normally tax is deducted taken from any interest before it is added to deposit accounts.

(Please note: there are special rules for people that do not pay Income Tax and choose to save or invest in Bank / Building Society accounts. We will be able to explain these rules).

There are certain rules regarding as to who can have an ISA plan. Since ISAs were first introduced there have been restrictions as to who can subscribe to a plan.

In order to make a contribution to an ISA plan you must be UK tax resident (or perhaps a Crown Employee that are serving overseas).

In addition to this there are age limits:

Anyone aged 16 or over may invest up to £3,600 into a Cash ISA.

People over the age of 18 may elect to invest their money in a Stocks & shares ISA.

If you have any queries about your eligibility for an ISA, please contact us now.

• ISAs come in two different versions so that they can cater for the different needs of investors.
• Stock and Shares ISA - These allow you to invest in either Company Shares quoted on a recognised Stock Exchange, investment trusts, unit trusts or OEICs. You can, if you wish, mix and match the investments.
• Cash ISA - These allow you to invest in a deposit account with a bank or building society.

ISA’s are an excellent way for taxpayers to save. Cash ISA’s and some other interest bearing ISA’s are tax fee where as dividend bearing ISA’s are classed as tax efficient, only being liable to a 10% tax credit. This means that for most people they are still paying less tax then through other types of saving plans.

Under current rules you can invest during any single tax year up to a total of £7,200 into a single Stocks and Shares ISA . (a tax year runs from 6th April to the following 5th April).

Although the total contribution limit is £7,200, there are individual limits on how much can be invested into the various components of an ISA.

• Stocks and Shares ISA - It is possible to invest up to the £7,200 Maximum into one of these. However this is only possible if you have not paid money into any other ISA plan in the same tax year.
• Cash ISA - Amounts up to a Maximum of £3,600 can be paid into a Cash ISA in any single tax year.

The Chancellor has announced that he will simplify the structure of ISAs, so that the terms Mini ISA and Maxi ISA will disappear from the 6th April 2008 and thereafter you will be able to subscribe to either a Stocks & Shares ISA or a Cash ISA.

The maximum you can subscribe into a Cash ISA is £3,600 and the balance, or full amount up to £7,200 into a Stocks & Shares ISA. This means that the overall new investment into an ISA during a tax year limited to a total of £7,200 with all providers.

Although over time you may end up with many ISA plans, you may only contribute a maximum of £7,200, during any single tax year, into an ISA.This can be up to a maximum of £3,600 into a Cash ISA and the balance, or full amount, into a Stocks & Shares ISA.

Each tax year you may decide to contribute to a different ISA provider to those you have contributed to before.

Under current legislation ISAs have considerable tax incentives over other forms of investments or savings.

• Cash ISAs are free of income tax. Other types of ISA are not necessarily free of income tax -it depends what they are invested in. Since 6 April 2004, any income from shares or share-based unit trusts within an ISA is paid with tax at 10% already deducted and this cannot be reclaimed. But there is no tax on any other type of income - for example, interest from gilts or corporate bonds - held within the ISA.
• You pay no tax on any capital gains achieved by your ISA investments (please note any losses cannot be offset against gains that are subject to Capital Gains Tax).
• ISA’s are free of capital gains tax. So, if your ISA increases in value, you make a 'capital gain', but you do not have to pay capital gains tax on this increase.
• There is no requirement for you to declare income and/or capital gains from your ISA plans to the HM Revenue and Customs. You don't even need to mention that you have an ISA on your Tax Return.

One of the major attractions of ISA plans is that they offer you excellent access to your money. You may withdraw your money at any time without losing any of the tax relief granted to your plan.

However most incur an initial cost when setting up so if you encash early this may mean you get less back than you originally invested.

Some ISA plans may run for a fixed period or require you to give notice of withdrawal. With these particular plans you could lose some interest or bonuses should you elect to withdraw your money early. You should always read the terms of your ISA plan carefully and pay particular attention to any conditions applying to withdraw of your money.

Please note that if you invest in a Stock& shares ISA you may not get back all the money you put in. This is more likely if you withdraw you money during the early years of your investment.

From 6 April 2005 the Government introduced the Stakeholder ISA. To earn the name ‘stakeholder’ the products have to meet conditions designed to ensure that they are straightforward and good value.

Stakeholder ISAs replaced CAT-standard ISAs from 6 April 2005 onwards. However, if you took out a CAT-standard ISA before that date, it will continue to meet the CAT standards. (‘CAT’ stands for fair Charges, easy Access and decent Terms.)

Neither the Stakeholder conditions nor the CAT standards guarantee the performance of a product. They do not mean that the Government recommends the product or that it is necessarily suitable for you. But they do provide a useful benchmark against which to compare other products.

Cash ISAs

• They must permit minimum contributions of £10.
• They must not have limitations on the frequency of withdrawals
• The interest rate paid must be no less than 1 per cent below the Bank of England base rate.
• If the Bank of England base rate goes up, the minimum interest rate must also go up within one month.

Stocks & Shares ISAs

• Annual charge limited to 1.5% of the fund during the first ten years and 1% thereafter.
• The minimum permitted investment cannot be higher than £20.
• No more than 60 per cent of the fund is invested in riskier assets such as shares or land and buildings.
• They must be managed to achieve a balance between risk and reward.
• The prices at which units or shares in the fund are bought and sold must be the same and the price should be published daily.

Any ISA plans you hold will end on the date of your death. No tax will become due on any income or capital gains that have been achieved up to that date. However, if the plan continues after your death, then your personal representatives will be liable for taxation on any subsequent income or capital gains.

The value of any ISA plans will be added to the rest of your assets when calculating the value of your estate for Inheritance Tax purposes.

In a similar way to any savings or investment scheme, before making any financial commitments like an ISA, you should give careful consideration as to whether this is the correct course of action for you.

Ensure you are satisfied the money could not be put to better use. If you have a large outstanding credit card balance, or other debts, you may wish to consider repaying this debt before you put money aside into any savings or investment scheme. We will be able to assist you in this matter. Please contact us with any questions.

If you decide to save or invest for the future, then careful thought must be given to the time period that you can afford to leave your money tied up. The use of a Stock & Shares ISA is normally suitable for people looking to save for the medium to long term (i.e. five years or more). A Cash ISA might prove to be a suitable home for short-term savings. But once you have saved up to the limit of £3,600 in one tax year, you cannot put back any cash you withdraw. It's the money you actually put in that counts towards the annual Cash ISA limit of £3,600..

Those people that decide to invest in a Stocks & Shares ISA must also take into account their personal attitude to investment risk. Please remember the value of your investment in these types of ISA can go down as well as up. We will be able to assist you when considering such matters.

You have the right to transfer an ISA run by one manager to an ISA of the same type run by another manager. However ISA managers do not have to accept a transfer and you should be aware of potential transfer charges.

Since the simplification of ISAs in April 2008 you can now transfer some or all of the money saved in Cash ISAs to Stocks & Shares ISAs, although the rules do not allow the transfer of cash held in Stocks & Shares ISAs to a Cash ISA.

Should you wish to include new investment or savings opportunities that are not provided from your current ISA manager then you may have to transfer you money to another manager.

Since April 1999 both Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) have been replaced, in respect to the starting of any new plans, by ISAs.

All existing PEPs automatically became Stocks & Shares ISAs on 6th April 2008 and are now subject to the ISA rules.

Tax-exempt special savings accounts (TESSAs) are no longer available, and the last TESSAs matured on 5 April 2004. You had six months from the date your TESSA matured (in other words up to 5 October 2004 in the case of the very last TESSAs) within which to transfer to a Cash ISA.