Individual Savings Accounts (ISA’s) were introduced in the 1999/2000 tax year. They replaced the PEP and TESSA products that had been previously introduced. The principles of tax-free growth were maintained for ISA’s.
Cash or Stocks and Shares
You can divide your ISA between two different components:-
- Cash ISA or,
- Stocks and shares ISA or,
- Combination of both.
Within the shelter of an ISA wrapper, returns are free from personal income tax and capital gains tax and you may withdraw your investment at any time. Investors must be aged over 16 for a cash ISA and over age 18 for a stocks and shares ISA.
The maximum contribution that can be made into a New ISA for tax year 2015/16 tax year is £15,240. There is no longer any distinction between maxi or mini ISAs and all ISAs are classified as either Cash or Stocks and Shares ISAs. There is no longer a restriction for investment into a Cash ISA, provided that the total ISA contribution is below the annual limit.
ISAs are savings and investment products with tax incentives.
- Capital gains made within the funds are free of capital gains tax (CGT).
- UK dividends are paid with a 10% tax credit which since 6 April 2004, cannot be reclaimed by the ISA manager.
- Commercial Property funds pay 20% tax on rental income within the fund which cannot be reclaimed by the ISA manager.
- All other income is tax free.
- Income and gains are free of taxation.
- Money can be withdrawn at any time without affecting the tax benefits.
From 6 April 2008 it became possible to transfer from a Cash ISA (including TESSA Only ISAs, TOISAs) into a Stocks and Shares ISA.
From July 2014 it became possible to transfer from a Stocks and Shares ISA to a Cash ISA.
Existing PEPs have been reclassified as Stocks and Shares ISAs and can be transferred to another Stocks and Shares ISA.
From 6 April 2008 existing PEPs became Stocks and Shares ISAs and are now subject to the ISA rules.
Junior ISAs (JISAs) became available from 1st November 2011. Here are the main features:
- Eligibility - All UK resident and ordinarily resident children under the age of 18 who do not have a Child Trust Fund (CTF) will be eligible for JISAs. This includes children born before the launch of the CTF. Anyone with parental responsibility for an eligible child would be able to open a JISA for that child. Eligible children will be able to open JISAs for themselves from age 16.
- Taxation - Any income or capital gains will be tax-free.
- Investments - Both cash and stocks and shares JISAs will be available. Children will be able to hold up to one cash and one stocks and shares JISA at a time (two accounts in total). The qualifying investments for both cash and stocks and shares JISAs will be the same as for the adult equivalents.
- Contributions - The overall contribution limit is £4,000 per tax year which, subject to JISA managers' T&Cs, can be split between cash and stocks and shares in any proportion. The contribution limit will be indexed by CPI from each 6th April onwards. Unlike ‘adult’ ISAs where the investor can open and subscribe to new ISAs in each tax year, a child can only hold up to two JISAs (no more than one of each type). Any person or organisation can contribute to a child’s JISA.
- Control - Accounts will be owned by the child and withdrawals will not normally be allowed until the child turns 18. The ISA effectively becomes an adult ISA at age 18 but will not affect the normal entitlement to ISAs. A person with parental responsibility will manage the child’s JISA until age 16. Children will have the right to manage their accounts from age 16.
- Transfers - It is possible to transfer Junior ISAs between providers
but not to hold more than one cash and one stocks and shares JISA at any
time. It is possible to transfer from a stocks and
shares JISA to a cash JISA as well as the other way.
Please be aware of the nature of risk involved with investments and that the value of your investment may go down as well as up.
Past performance is not necessarily a guide to future returns and therefore it is possible that you may not get back the full amount invested.
Transferring from one manager to another does not in any way affect the favourable tax status these investments enjoy and can easily be administed by using a fund platform.
Ask for details for how this could benefit you.
The tax treatment is dependent on individual circumstances and may be subject to change in the future.
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