To ISAs or not to ISA

What is an ISA?
The
dictionary term is: – “an Individual Savings Account (ISA) allows individuals
to hold cash, shares and/or unit trusts tax-free on dividends, interest and
capital gains.
What does this mean?
Each
tax year the Government ‘generously’ gives us a tax-free allowance on savings
held within an ISA.
In
July 2014, the Government increased this allowance to £15,000.  The Government has already announced the new
ISA allowance the coming 2015/16-tax year of 
£15,240.
Growth
or income from ISAs is tax-free.  You
don’t even need to declare the income you receive on your tax return.
provided
you have not exceeded your allowance for the tax year.
What’s the difference between the different
types of ISAs?
There
are two types:
CASH ISA
A
Cash ISA works pretty much the same as any other savings accounts except the
interest earnt is tax-free.
This
type of ISA is great for someone that wants to be tax efficient, but may need
access to the cash to cover unexpected bills. 
Within a Cash ISA your cash remains as cash and can therefore be removed
at any time.  You can add to your ISA but
only up to the £15,000 withdrawn
The
downside to Cash ISAs is that interest rates are still very low.  Cash is an inefficient way to save for long
term goals.
STOCKS & SHARES ISA
A
Stocks and Shares ISA invests your money in other equities such as Gilts and
Bonds to Unit Trusts and Investment Trusts and OEICS a range of stocks and
shares from government stocks and bonds to unit trust and holdings in blue-chip
companies.  It can also hold cash much
the same as a Cash ISA.
Compared
to a Cash ISA, a Stocks and Shares ISA has a higher potential return but with
it comes a greater risk and cash may not be instantly available.  The value may experience fluctuations in
accordance with the market.
A Equity
ISA should be considered as a long-term investment (3-5 years) rather than a
short-term cash holding.  Most often,
this suites people with a little more cash spare or people looking at longer
term savings or goals, as their ISA allows them to invest tax-free in the
long-term, but still leaves them with liquid assets available in case of an
emergency.
Who can open an ISA?
ISAs
are open to UK residents only (Crown Employees).  Cash ISAs can be opened from the age of 16
with Stocks and Shares ISAs from 18.  
There
are special Junior ISAs available with some extra rules, if you would like more
information about Junior ISAs, please contact us.
It’s
important to note that ISAs can only be opened in an individual’s name.  They cannot be opened jointly which means
that a couple can have two ISA allowances each year.
ISA Golden Rules
1.             
You can only open one ‘new’ ISA of each type
each year.
2.             
You have one allowance per tax year, per person.  You can choose to place this all in a Cash
ISA or all in a Stocks and Shares ISA or you can opt to mix and match and spilt
your allowance between a Cash ISA or a Stocks and Shares ISA.
3.             
If you fail to use your ISA allowance before the
end of the tax year it cannot be rolled over so once it’s gone it’s gone.
4.             
If you want to switch providers for any reason,
no problem, just remember do not remove or disinvest yourself.  Once it has been removed from it’s ISA ‘wrapping’
anything that was within it looses its tax-free status.  Your new provider will do the transfer for
you, which retains the ISA status and does not effect this years’ allowance.

Should
you wish to discuss ISAs or any other element of your financial planning needs,
please call us on 01636 870 069.