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Individual Savings Accounts, also known as ISAs, allow you to put a certain amount of money away every year, and not have to pay any UK tax on the interest. There are two basic types of ISA – Cash, or Stocks and Shares. Here, we shall outline the different types and how much you can save each tax year. Tax years run from the 6th of April until the 5th of April the next year.
An ISA can consist of an investment in cash or an investment in stocks and shares. Until recently, there was another type of ISA known as an insurance ISA, but this is no longer available. You can have one cash ISA and one stocks and shares ISA over the course of the tax year.
You can get ISAs from any company, such as a bank, building society, or financial advisor that is authorised by the Financial Services Authority and approved by HM Revenue and Customs. Going with an authorised firm is no guarantee that the ISA will perform well, but it does mean that you will have access to the Financial Ombudsman scheme and the Financial Services Compensation Scheme if anything should go wrong.
Many of the best deals can be found online. For example, Legal & General offer a stocks and shares ISA* that can boast an average yield of 6.1% per annum. Every year, you can invest up to £3,600 in a cash ISA, and up to £7,200 in a stocks and shares ISA. You can have one of each, and they don’t have to be from the same provider, but you can only invest £7,200 in total. However, in October 2009, this will rise to £10,200 for citizens born after the 5th of April, 1960. The money in a cash ISA can be transferred into a stocks and shares ISA, but money invested in a stocks and shares ISA can only be transferred into another stocks and shares ISA.
The income that you receive from your ISAs is not eligible for any tax. For example, if you had £15,000 saved in cash ISAs from previous tax years, you could reinvest up to £7,200 of that in new ISAs, meaning that you can earn tax free interest upon money earned from previous ISAs.
In order to be eligible for an ISA, you have to be living in the UK. If you move abroad, you will not be able to put any more money into your existing ISAs, but you can still reap the benefits of any investments you have already made. However, if you are a crown employee abroad, such as a soldier or diplomat, you are still entitled to invest in an ISA.
*Visit their website to find the right
ISA
for you.
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