Pembroke Wealth Management: 
individual savings accounts ( ISAs )
"An ISA is simply a tax efficient 'wrapper' that surrounds a specific investment, such as a unit trust, shares or cash savings account."
What is an ISA?
ISAs are available to all UK residents over 18 years of age. 16 years of age for the Cash ISA. They benefit all taxpayers, especially those paying at the higher rate. Any income or capital gains from investments held within an ISA do not have to be declared to the tax man.
ISAs were introduced in 1999 and replaced PEPs (Personal Equity Plans) and TESSAs (Tax Exempt Special Savings Accounts).
You can invest into a variety of components within an ISA but essentially the choice is either Cash or Stocks and Shares - the latter can include Unit Trusts or Investment trusts, Open Ended Investment Companies (OEICs), Gilts (bought with at least 5 years until maturity) or any share quoted on a stock exchange recognised by the Inland Revenue.
Cash Mini ISAs and TESSA only ISAs automatically became Cash ISAs. PEPs automatically became Stocks & Shares ISAs.
Tax efficient?
- All growth on investments held within an ISA is tax-free. You do not have to pay Capital Gains Tax (CGT).
- When you receive income from an ISA there is no additional tax to pay. This means that you can enjoy interest payments from cash and corporate bonds tax-free. Higher rate taxpayers avoid paying a further 22.5% tax on the net dividends received. Please note that the 10% tax credit on UK equity dividends is no longer reclaimable within an ISA.
How much can I put into my ISA?
The ISA Subscription Limits for the 2011-12 Tax Year were set in the Spring Budget.
The annual ISA subscription limit for the 2011-12 tax year has been increased so that from the 6th April 2011 you will now have an annual allowance of £10,680 which can be subscribed to a Stocks & Shares ISA.
That means a married couple will now be able invest £21,360 in the ISA tax free wrapper for the 2011/12 tax year.
The annual allowance has been increased from £10,200 in line with inflation (measured via the Retail Prices Index) so that the amount you are permitted to save each year is not diminished by the effects of inflation. In addition, it is intended that the annual allowance will be increased in line with inflation every year from now on.The new maxima for 2012/2013 have recently (October 2011) been set at £11,280 - a maximum therefore of £5,640 will be attributable to the Cash element.
Legislation relating to Individual Savings Accounts is subject to frequent change.
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