2nd May 2013 at 12:52pm
1. What is an ISA?
Since 1999, individual savings accounts have allowed many people in the UK to benefit from savings and investments which are free of income tax and capital gains tax. There are 2 types: a cash ISA, and a stocks and shares ISA.
2. Tell me about the cash ISA
It’s basically a tax free deposit account. For simple cash savings, in the tax year to 5th April 2014, you could save up to £5,760 in a cash ISA.
3. Tell me about the stocks and shares ISA
With this ISA, you can save a larger amount – up to £11,520, for the tax year to 5th April 2014. Many kinds of investments can be held in this type of ISA, for example Treasury stock, shares or corporate bonds, to name just a few. It’s also possible to mix and match – you can save up to £5,760 in a cash ISA and then the balance into a stocks and shares ISA, up to that overall limit of £11,520.
4. Tell me more about the tax benefits of an ISA
From an income tax point of view, an ISA could save you tax at 20%, 40% or 45%, depending on your personal tax position. And with a stocks and shares ISA, the capital gains tax you could save could be 18% or 28%. This means you don’t have to include your ISA on your tax return.
5. How do I choose which ISA is right for me?
Different people have different goals. Some of this comes down to a person’s attitude to risk and how comfortable they are with stock market fluctuations. Stocks and shares ISAs are generally aimed at those who want to set aside investments for the medium to longer term. Investments can do down in value as well as up and you can get back less than you’ve paid in. A cash ISA does not have that investment risk, and could be useful for a range of things, such as an emergency fund or rainy day money.
6. Do I have to invest the full amount in one go?
No. You can pay-in monthly.
7. What’s the benefit of regular payments?
By contributing early, you get the benefit of the full tax year and the tax free returns which are possible over 12 months, rather than investing at the end of the tax year. It also makes it more affordable.
8. Do I have to withdraw the income from my ISA?
Not usually – you could let income roll-up and accumulate inside your ISA, which could also help it become even more valuable in the future.
9. How flexible are ISAs?
The main restriction with ISAs is the annual limit which sets the maximum you can save or invest. Other than that, there is flexibility to transfer ISAs, which could be convenient if you want to consolidate various ISAs you’ve taken out over the years. And with Standard Life’s stocks and shares ISA, there’s the choice of over 2,000 funds. Or you can narrow that right down and match a fund to your appetite for risk. It’s up to you.
10. Can I use last year’s ISA allowance?
No, you can’t, so the message is ‘use it or lose it’, to get the most out of your ISA.
For more details about ISAs, have a look at standardlife.co.uk