Money Minder UK

ISAs

An ISA is basically a form of tax efficient wrapper in which you can place investments to give them tax efficient status.

For the tax year 2017 an individual's total annual subscription limit to an ISA is £20,000 per tax year, of which a maximum of £20,000 can be held in cash.

Subject to the overall limits, you can split your ISA between the following components:

A. STOCKS AND SHARES

You are able to hold stocks and shares and managed investment funds within an ISA.

It is possible to invest up to £20,000 into stocks and shares inside an ISA in the tax year 2017 .

B. CASH

You have the option of holding a proportion of your ISA allowance in cash, which will earn tax-free interest. You are able to invest £20,000 of that annual allowance in to a cash deposit account in the tax year 2017 .

Due to new rules that came in to effect in April 2010, as long as you don't exceed the maximum ISA allowances in any one tax year, you can now split your ISA investments much more flexibly.

For example, in the 2011/2012 tax year, if you wanted to, you can now invest just £2,680 in to a cash ISA and put the remaining £8,000 allowance in to a dedicated investment ISA that has the potential to provide much higher returns than a Cash ISA over the medium to long term.

The maximum contribution limits are shown in the following table:

ISA Allowances - 2017
Total Allowance

Investment
(Stocks & Shares)

£20,000
(less any amount invested into cash as detailed below)

Cash
up to £20,000 max cash allowance

IMPORTANT NOTE :- you have just one ISA allowance available each tax year (6th April to 5th April). Subject to the rules above, you can however split your ISA allowance between two different providers, i.e. a Cash ISA with one provider and an Investment ISA with another.

With effect from April 2011, the government have confirmed that each tax year, it is their intention to raise the amount that individuals can put in to their annual ISA allowance by inflation each April.

Since April 2008, the distinction between mini and maxi ISA's became technically incorrect.

However, over the previous 9 years, many people used their ISA allowances by splitting the amount they invested in to two different parts as a mini cash ISA allowance with their bank or building society and a mini stocks and shares ISA allowance with an investment company. For this reason, we have decided to keep the explanation of 'the old ways' intact for the foreseeable future, for reference purposes,(please see below).

Back in April 2008, you could invest up to £7,200 into an ISA of which no more than £3,600 was allowed to be held in cash.

For that reason many people still hold their old cash ISA allowances with a bank or building society. When they wanted to use the whole of their annual ISA allowance, they would often invest the remaining £3,600 in to a stocks and shares based ISA with a separate provider.

The Old Days - Mini and Maxi ISAs


The Maxi ISA - April 1999 to April 2008

One ISA provider managed the Maxi ISA. It had to offer the stocks and shares component but could also offer cash. If you wish to invest your full ISA allowance in stocks and shares, you could only do so through a Maxi ISA as the maximum that could be invested in a Mini ISA stocks and shares ISA component was £4000 per year.

The Mini ISA - April 1999 to April 2008

The Mini ISA was only allowed to hold one of the two components (shares or cash). For this reason, many investors would tend to invest the two components separately, with different providers. This meant that they would often end up with two Mini ISA's in a tax year rather than one Maxi ISA.

Investments are free from capital gains tax, however, investors will no longer receive a 10% tax credit on dividends from UK equities as this has been totally removed from April 2004, meaning that such dividends will be fully taxable from this date, although there will be no further tax liabilities, even for higher rate taxpayers. However, investments in corporate bonds and gilts are free from tax and are able to reclaim the full 20% tax credit.

The stocks and shares element of the ISA will allow you to take advantage of the pooled resources and broad spread of risk offered by a collective investment that brings together the shares of many companies. The stocks and shares element of an ISA can be used to invest in many different types of investment fund including unit trusts, investment trusts and OEICS.

These will usually be actively managed by a professional fund manger who will buy and sell shares on your behalf, with the aim of achieving the maximum possible return on your investment. In the past, over the medium to long term, this type of investment has produced an excellent level of growth, although it is important to remember that past performance is no guarantee for the future, and the value of such investments can fall as well as rise.

Many ISA's do not have a minimum investment period, however, it is important to remember that any investment in stocks and shares should be considered as a medium to long term investment. It is also important to consider any costs or penalties that may be imposed by different providers should you wish to surrender or cash in your ISA.

If you would like to look further into investing into an ISA, you can contact us at info@money-minder.com or call us on 0845 218 9194 between 8am and 8pm Monday to Friday and 10 am to 2pm on Saturdays when we will be happy to discuss your requirements further.

We are able to offer a full independent financial advice service and recommend appropriate solutions to your needs that will take account of your personal financial circumstances.