ISA Guide - Introduction
ISA Guide - Introduction
Individual Savings Accounts (ISAs) are savings schemes that allow people to save their money in a range of investments such as cash, stocks and shares and life insurance products – tax free (individuals do not have to declare any income or capital gains they receive to the taxman).
The tax free element is why ISAs are often regarded as a “ tax wrapper”, protecting your savings from certain taxes.
ISAs were introduced in 1999 by the Government, as a replacement for Tax Exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs), to encourage more people to save by offering tax incentives.
In our ISA guide:
- Types of ISAs
- How much can be Invested in an ISA?
- Switching ISA Providers
- Benefits of ISA Investments
- Compare ISA providers
Compare ISA Accounts
With ISA limits changing from 2010, it's a good time to find a good ISA provider.
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Legal & General offer a wide variety of ISAs from Index tracker ISAs to Multi Manager ISAs.
ISA Eligibility
In order to open an ISA, you must be aged 18 or over (although, if you are over 16 you are eligible to open a Mini Cash ISA or the cash component of a Maxi ISA).
Individuals, working abroad or Spouses and Civil Partners of individuals working abroad, for example Civil Servants or Armed Forces who are paid by the British Government, are also entitled to open an ISA as exceptions to UK residents.
An ISA cannot be held jointly with any party, or on behalf of other individuals.
What can be invested into an ISA?
Cash and shares are the two components of investment that can be used in an ISA.
- Cash: Cash ISAs are simply savings accounts where the interest isn't taxed and, as with normal savings accounts, there is a wide variety available such as instant access and fixed rate cash ISAs.
Basic rate tax payers in the UK generally pay 20% tax on bank interest, while higher rate tax-payers pay 40%.
The cash component permits you to hold bank and building society deposit accounts, National Savings and Investment products and investment or insurance products which aim to produce cash like returns, e.g. money market funds.
- Shares: Share based investments may be made into an ISA. Shares in individual companies may be placed inside what's known as a self-select ISA, which are usually managed by stockbrokers.
Within the stocks and shares component you can hold investments such as individual stocks and shares, investment products such as authorised unit trusts, open-ended investment companies (OEICs) and life insurance products.
A common use of the shares allowance is for collective investment vehicles such as investment trusts (pooled investments). A fund manager will be used to pick a selection of shares based on geographic or sector criteria and the value of the investment depends on the collective performance of the shares picked.
By using an investment trust you will be able to reclaim all the tax on bonds and any profits made from share price increases will not be eligible for capital gains tax
It is important to note that not all managers will offer both components and may not provide the full range of permitted investments, so make sure you carry out some relevant research before signing up.
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