ISA Advice

 

 

Independent ISA Advice in London

 

 

An Individual Savings Account (ISA) is a financial product available in the United Kingdom , designed for the purpose of investment and savings with a favourable tax status. ISAs were introduced on 6 April 1999, replacing the earlier Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs), which continue to exist only for money already invested in them and for interplan transfers.

 

There are two types of ISA:

 

Mini ISAs

 

Maxi ISAs

 

 

 

An ISA can contain two components:

 

Cash component :

 

A cash deposit that is similar to any other ordinary savings account, apart from the tax-free status.

 

Stocks and Shares component :

 

The money is invested in 'qualifying investments' consisting of any combination of stock market equity investments (with no geographic restriction), public debt securities such as government or corporate bonds, or cash "awaiting investment". As a consequence, the risk profile of the ISA may be anything from low to high. The investments may also include or consist of property funds or derivatives such as options . This element may be self-invested and managed through a stockbroker, but the majority of investors invest collectively through a collective investment such as a unit trust , OEIC or investment trust.

 

Transfer rules:

 

It is possible to transfer ISAs from one manager to another, however there are several points to be aware of.

 

•  It is not possible to transfer between component types.

 

•  Whether the original contributions were made to a Maxi or Mini has no effect on transfer. The transfer must be done between the managers. If a saver transfers the money manually, it will be treated as a withdrawal and they cannot invest this in an ISA if their subscription limit has already been reached.

 

•  Transfer of an ISA from the current tax year must be total. Partial transfers are only allowed on ISAs from previous tax years.

 

 
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Subscription limits

 

There are restrictions on investing in ISAs in each tax year (6 April to the following 5 April) which affect the type of ISA that may be opened and the amount of the investment.

 

Any UK resident individual of at least eighteen years of age can invest in one 'Maxi' ISA, with both components provided by a single financial institution. Alternatively, a person can invest in two 'Mini' ISAs, one for each component (see above). The two mini ISAs may be with two different providers if the investor wishes.

 

The amounts which may be deposited in an ISA in the tax year 2007/08 are fixed by law.

 

For a Mini-ISA:

 

Cash: up to £3,000

Stocks and shares: up to £4,000

 

For a Maxi-ISA: a total subscription limit of £7,000 which may be invested:

 

Cash: up to £3,000

Stocks and shares: up to £7,000

 

These limits may be changed by the Chancellor of the Exchequer in the Budget .

 

Tax treatment

 

All income and all capital gains are tax-free.

 

Interest on any cash held in the stocks and shares component is subject to a flat charge of 20%.

 

Collective funds in the Stocks and Shares component usually attract the same initial and annual charges as they would do if held outside an ISA.

 

Fund Supermarkets

 

Investors are only permitted to invest their Stocks and Shares component with a single financial institution in any year. For investments into collective funds, these institutions have traditionally been the fund management companies themselves. This creates a difficulty for investors wishing to diversify their investment into the collective funds of different fund management companies in the same year. It also means that investors wishing to transfer existing ISA holdings have to transfer the ISA itself between providers, which can be a time consuming process and incur transfer charges.

 

To avoid these problems, a number of Fund Supermarkets have been set up. These are organisations which act as ISA providers who offer access to a wider range of collective investments from a variety of fund managers. They allow investors to build a more diversified portfolio within a single ISA provider and to transfer their investments between funds without the complication and delay of changing ISA provider. Fund Supermarkets are promoted by many Independent Financial Advisers and have quickly become popular because they allow investors greater choice and flexibility at no extra charge. Instead of charging the investor, the Fund Supermarkets are paid by the fund managers out of their usual charges.