Successive governments, concerned at the relatively low level of savings in the UK economy have over the years introduced various means by which individuals can save through a tax-free environment.
Individual Savings Accounts (ISAs) were introduced in April 1999 and the government has confirmed that ISAs are a permanent feature of the savings landscape.
What is an ISA?
ISAs are tax-exempt savings accounts available to individuals aged 18 or over who are resident and ordinarily resident in the UK. ISAs are only available to individual investors and cannot be held jointly.
ISAs are guaranteed to run for ten years although there is no minimum period for which the accounts must be held.
Since April 2001, 16 and 17 year olds have been able to open a mini cash ISA (see below). However if the funds to open such an account originated from the children’s parents then any income is not tax-free but taxable on the parents under the settlements provisions if it exceeds £100 per annum.
Investment limits
The 2012/13 annual ISA subscription limit is £11,280 of which not more than £5,640 can be invested in cash. There is no minimum subscription level.
Investment choices
ISAs are allowed to invest in cash (including bank and building society accounts and designated National Savings), stocks and shares (including unit and investment trusts and government securities with at least five years to run) and life assurance.
Types of ISA
Investors are able to invest in two separate ISAs in each tax year; a cash ISA and a stocks and shares ISA.
Tax advantages
The income from ISA investments is exempt from income tax. However the tax credits on any dividends are not reclaimable.
Any capital gains made on investments held in an ISA are exempt from capital gains tax.
Uses of an ISA
Many people use an ISA in the first instance, to save for a rainy day. Since they were first introduced people have used them to save for retirement, to complement their pension plans or to save for future repayment of their mortgage to give just a few examples. We have known young people, wary of commitment to long-term saving start an ISA and when more certain of the future use it as a lump sum to start another financial plan.
Junior Individual Savings Account (Junior ISA)
The government has introduced a Junior ISA which is available for UK resident children under the age of 18 who do not have a Child Trust Fund account. Junior ISAs are tax advantaged and have many features in common with ISAs. They can be cash or stocks and shares based products.
How we can help
Please contact us if you would like any further information on ISAs.