Individual Savings Accounts (ISAs) are a simple tax-free wrapper into which you can place either cash or shares. ISAs were introduced in 1999 to replace old style PEPs and Tessas and to encourage us to save. Whether for cash or shares, an ISA should be the first stop for your savings; they are great for accumulating tax-free wealth to provide tax-free growth and/or income.
Cash ISAs are simply savings accounts where you are not taxed on the interest you earn. Stocks and shares ISAs should be used for long-term investments are a way of putting money into a wide range of investments without having to pay tax on the profits you make – any profits made from share price increases aren’t eligible for capital gains tax and all the tax on bonds to be reclaimed. It must be noted that with Stocks and shares ISAs the tax credit on dividend income received by the underlying fund is not recoverable. Stocks and shares ISAs involve a degree of investment risk and there is therefore a risk of capital loss.
Each tax year – from April to April – you are given an allowance that can be placed into an ISA tax-free. The 2011/12 ISA limit is £10,680, up to £5,340 of which can be in the form of cash.
You have three options when investing in an ISA:
- Mix and max your allowance, placing an amount of cash under £5,340 into a cash ISA and investing the rest of the £10,680 allowance in a stocks and shares ISA.
- Use all the allowance for shares, investing £10,680 worth of shares in a stocks and shares ISA.
- Use the maximum cash allowance, placing £5,340 into a cash ISA and leaving £5,340 available to fill with shares (if you choose to).
To take advantage of your full ISA allowance before 6 April 2012, speak to one of our savings and investment specialists. Generation Financial Services will look at your individual financial circumstances and offer advice and recommendations on the most suitable option for your tax-free saving.