Individual savings accounts (Isas)
Isas offer a way of avoiding tax on savings sheltered within them. They are a tax-free wrapper in which you can hold unit trusts, bonds, investment trusts, OEICs and cash. It always makes sense to keep the taxman’s hands off your interest or profits, especially if you pay tax at the highest rate. Isas are about as complicated as it gets, so pay attention.
Each year you can put up to £5,000 away, though the 2000 Budget gave a boost to Isas by allowing an extra £2,000 to be saved in the 2000/2001 tax year. There are two main types of Isa – maxi and mini. And there are three different types of investment you can choose from:
Cash Isas, which effectively replaced Tessas (see SAVINGS – Which account to choose); Share Isas, which effectively replaced Peps; And Insurance Isas, which were a new concept when Isas were introduced.
In any tax year you can have just one maxi Isa or up to three mini Isas. You cannot have maxi and mini Isas together. Each mini Isa invests in either cash, shares or insurance. You cannot have two mini Isas of the same type. Maxi Isas must have a share component but can also include cash and or insurance.
In any tax year you can have just one maxi Isa or up to three mini Isas. You cannot have maxi and mini Isas together. Each mini Isa invests in either cash, shares or insurance. You cannot have two mini Isas of the same type. Maxi Isas must have a share component but can also include cash and or insurance.
You can save up to £3,000 in a mini share Isa, £3,000 in a mini cash Isa and £1,000 in a mini life insurance Isa. A maxi Isa allows you to save the maximum amount in one account – £7,000. You can hold £3,000 in cash, £1,000 in life-insurance and the remainder – up to the maximum £7,000 – in shares. But to do this you need a maxi Isa manager who offers all three types of accounts – and this may be difficult
 |
||||
|
|
|
|
|
|
TIP: Choose a maxi if you want to put all your Isa money into the stock market or gilts and corporate bonds. Choose a mini if you want the flexibility to shop around for the best cash Isa rates, and are happy with the £3,000 a year limit on your share Isa.
|
|
|
|
|
|
|
|
|
|
||||
If you have peps or Tessas, don’t worry. Peps carry on as they are although you cannot add any more money to them. Tessas also closed for new business on 5 April,1999, but as they mature – five years from the date they were opened – they can be rolled over into an ISA without affecting your Isa allowance for the year in question. You can carry on paying into your existing Tessa until it reaches maturity.
You may want to invest in a CATmarked Isa (for the CAT standards for cash Isas see SAVING – Which account to choose).
For the investment element of an Isa, CAT means:
Annual charges should be no more than 1% of the plan’s net asset value, in effect the investment plan’s value. There should be no other charges such as initial (set-up) or exit fees.
The minimum investment should be no higher than £50 per month or a £500 lump sum.
Funds should have at least 50% of their assets invested in shares listed on European Union stock exchanges. This ensures that investors do not buy esoteric funds such as those investing in emerging markets or commodity shares.
|
||||
|
|
|
|
|
|
TIP: As far as share-based investments are concerned, the CATmark guarantees fair charges only, not investment performance.
|
|||
