ISAs
Individual Savings Accounts (ISAs) replaced Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) as tax efficient investments in 1999. An ISA is a tax-efficient "wrapper" into which a wide variety of investments can be placed.
ISA contribution limits and taxation
In the tax year 2007/8, any individual over the age of 18 who is resident in the United Kingdom may invest between £1 and £7,000 through a range of plans offered by Banks, Building Societies and Fund Managers. ISAs have the option of two types of investment - Cash (including National Savings), and Stocks Shares (including Unit Trusts and OEICs).
Investment within these sectors is held so that account holders do not have to pay tax on capital gains or income generated from their account. In addition, withdrawals may be taken from the ISA account at any time without forfeiting any of these tax advantages.
Within the ISA wrapper there are three varieties of accounts. These are:
Maxi ISA
Unlike a Mini ISA, a Maxi ISA can contain two types of investment. However, the Inland Revenue has set limits on how much you can contribute to each kind of investment within a tax year. These limits are: £7,000 in stocks and shares and £3,000 in cash. You can choose how much you contribute to each component within these limits; however your total contribution in a single tax year must not exceed £7,000.
There are also rules about how many ISAs you can contribute to in a tax year. You can only contribute to one Maxi ISA per tax year, from one provider. And if you contribute to a Maxi ISA, you cannot also contribute to a Mini ISA during that year.
Mini ISA
There are two aspects to a Mini ISA. First, you can only make one type of contribution to a Mini ISA. For example, you cannot put shares and cash in the same Mini ISA.
The maximum contributions to Mini ISAs are currently £3,000 in cash and £4,000 in stocks and shares. You cannot switch from one type of component to another. For example, cash cannot be switched to stocks and shares.
You can choose different providers for each of your Mini ISAs, allowing you to choose the most appropriate firm for each investment type. Furthermore, you can contribute to a maximum of two Mini ISAs per tax year - one for cash and one for stocks and shares. Remember £1 invested into cash will limit your stocks and shares allowance to just £4,000.
Existing ISA and PEP investments
You can transfer funds between different Managers and these amounts do not form part of your ISA investment allowance.
The selection of the appropriate fund is the most important choice. Your personal circumstances should also be considered before investment.
If you would like to discuss how our advisers could help you, or if you would like a review of your existing investments, please contact david.brennan@sbjbc.co.uk or sebastian.fretten@sbjbc.co.uk.
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