Individual Savings Accounts (ISAs) - Brookson Ltd

Individual Savings Accounts (ISAs)

ISAs are tax favoured savings and investment accounts. You can use them to save cash or invest in stocks and shares. The maximum you can put in to an ISA is £11,880 in each tax year. Up to £5,940 of that allowance can be saved in cash while the remainder can be invested in stocks and shares.

You don't pay any Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. This does mean that you can't use losses on ISA investments to reduce Capital Gains Tax on profits from investments outside the ISA.

When the maximum allowance has been invested for one financial year, individuals are not able to invest any more even if a withdrawal has been made.

For example, a Cash ISA is opened and £2,000 is invested at the start of a financial year so the maximum amount that can be invested over the remainder of the year is £3,940. If a withdrawal of £500 is made halfway through the year, the maximum amount that can be invested is still £3,940 not £3,740. Providing no more withdrawals are made and the remaining maximum investment is made, the balance at the end of the year would be £5,940. The total amount of money invested into a Cash ISA each year is £5,940 regardless of the number of withdrawals made.

To open an ISA, individuals must be 18 years old or over however, an individual aged 16 and over is entitled to open a Cash ISA.

Individuals must be UK residents for tax purposes. People working abroad or Spouses and Civil Partners of individuals working abroad are also entitled to open an ISA.

ISAs cannot be held as joint accounts or on behalf of other individuals.

The different types of ISA

There are two types of ISA, Cash ISA and Stocks and Shares ISA. An individual can invest up to £11,520 per year in to ISAs. There is a limit on Cash ISAs of £5,760; you can invest any amount in to the Cash ISA up to this limit.

For Stocks and Shares ISAs you can chose to invest your whole annual allowance of £11,880 in to this ISA or you can invest a combination of Cash ISA and Stocks and Shares ISA up to the annual limit.

Formerly Mini cash ISAs, TESSA-only ISAs (TOISA) and the cash component of Maxi ISAs are now Cash ISAs. If you previously had one of these ISAs you do not need to take any action; the process to transfer these to a Cash ISA was automatic. Mini stocks and shares ISAs and the stocks and shares component of Maxi ISAs are now simply Stocks and Shares ISAs. Again no action is required on your part.

All PEPs are now to be known as Stocks and Shares ISAs; again, no action is required on your part for this transition.

PEPs are now known as Stocks and Shares ISAs. You will be able to continue investing in your PEP (Stocks and Shares ISA) as usual, providing you don’t open a new Stocks and Shares ISA.

TOISAs are now known as Cash ISA again you can continue investing in this providing you have not opened a Cash ISA. The new limit of investment applies i.e. £5,940 per financial year. You may transfer your existing balance in to a Stocks and Shares ISA without affecting your annual allowance however, you cannot transfer PEP (Stocks and Shares ISA) to a Cash ISA.

If you wish to transfer your former TOISA in to a Stocks and Shares ISA you must contact your provider and ask them to make the transfer. Do not withdraw the cash, as only the provider must perform the transfer.

Cash ISA

The Cash ISA allows individuals to invest in Building Society deposits, UK and European authorised Bank deposits, cash unit trusts or National Savings. This is a good choice for short-term savings especially if individuals want to access their money easily. The Cash ISA allows individuals as young as 16 years to benefit from tax-free savings.

With Cash ISAs the return comprises the sum invested plus interest over the term.

Shares ISA

The Stocks and Shares ISA allows individuals to invest in collective shares, for example, Unit Trusts, Investment Unit Trusts, shares listed on a recognised stock exchange, bonds and gilts and Life Assurance. The return on Stocks and Shares ISAs will comprise any income (interest or dividends) from the underlying interest plus any growth in capital value. An individual needs to be comfortable taking on the risk of market fluctuations in the value of their investment.

Investment period

An ISA offers cash investors the same tax-free conditions as share investors without any lock-in period. Withdrawals can be made at any time without losing tax relief attributed to the account (as long as the rules of the individual product allows it).

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