ISAs
Individual Savings Accounts (ISAs) were first introduced in April 1999 by the Labour Government to replace Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs). Designed to encourage both long term and short term saving, ISAs have proved one of the most popular tax-efficient ways to save and invest money.
What is an ISA?
ISAs are ‘tax-efficient wrappers’ you can use to save cash or invest into stocks and shares. Although a 10% tax on dividends is applicable, you do not pay tax on the income you receive from your ISA, or on the interest your savings earn – no matter how much your investment grows by or how much you withdraw in any financial year.
Each tax year, you have a certain ISA allowance (for 2011/12 tax year, it’s £10,680), which can be invested into a Stocks and Shares ISA. A portion of this allowance (up to £5,340 for 2011/12) can be invested into a Cash ISA. Remaining allowances can’t be carried over into the next tax year, so if you don’t use it you will lose it.
Cash ISAs
These are generally used for short-term saving. You can usually have quick access to your money and make withdrawals at any time, though you need to check policy restrictions and notice periods, as these tend to vary between ISA providers.
Whether you wish to invest all your money in a Stocks and Shares ISA or save some money in a Cash ISA, you must invest all your money with the same ISA provider – so it is important that you find the ISA most suitable for you. You must be a UK resident aged 18 over to take out a Stocks and Shares or aged 16 and over to take out a Cash ISA.
Stocks and Shares ISAs
These are generally used for investing money into a combination of assets, for example Equities and Gilts. They are more suited for longer-term investing, as it is possible to build a sizeable tax-efficient pot over a number of years – which could be used to pay for life’s big moments (e.g. a family wedding) or even to set up a tax-free income (e.g. in retirement). All future gains and all future income from your investment will be sheltered from the Taxman.
Benefits
- Although a 10% tax on dividends is applicable, you don’t have to pay any capital gains on your investment growth
- You don’t have to include income and gains from an ISA on your tax return
- ISAs can be taken out at any time, although a notice period or restrictions may apply
Potential drawbacks
- For Stocks and Shares ISAs, your capital is at risk
- With Cash ISAs your capital is guaranteed, but the potential for high returns is lower compared to the potential return from a Stocks and Shares ISA
- Although withdrawals are allowed at any time from an ISA, if you have already used up your allowance you cannot put this money back into your ISA
- You must be a UK resident to place money into an ISA
- ISAs can only be held in one name
Taxation
- Your investment – and the returns it generates – are protected from the Taxman
All investment returns are determined by performance, market conditions and overall economic factors.
To read about your other investment options, click on the following links:
To find out more about any of
the services we’ve mentioned
simply:
- Contact your SFS Financial Adviser
- Call a member of our Client
Help Line on 0800 137 832 - Visit your local Skipton
Building Society branch to
arrange an appointment with
an SFS Adviser
Assess how much money you need to save to reach future savings targets.
Register your email now for
exclusive news and updates
from Skipton Financial Services.