ISA’s-Keeping it simple



Introduced in 1999 ISA’s (individual saving accounts) are still not something people really understand which is why we thought this simple guide would help.

Types of ISA

There are two types, a Cash ISA and a Stocks and Shares ISA.

Cash ISA

These are the same as a savings account except there is no tax on the interest. In a normal savings account you would have to pay your highest rate of tax on the interest. This would be 20% for basic rate taxpayers, 40% for higher-rate taxpayers and 45% for additional-rate taxpayers.

Tax treatment varies according to individual circumstances and is subject to change.

 

There are several types of cash ISA’s to choose from including instant access and fixed rate. So all you have to do is choose the type that suits you, look for the best rate and open a cash ISA. There is no fee to open a cash ISA.

Stocks and Shares ISA

This type of ISA is for long term investments so will invest in things which can go up in value but may also go down. Rather than investing in cash, these ISA’s invest into things such as bonds and shares. This is where you lend money to a company and the company pays you interest.

The easiest way to invest in these things is through a fund. This is where you pay money into a fund and it is combined with money from thousands of other investors. A fund manager will then decide on which companies they want to invest in.

All you need to do is decide on the type of fund you want. This could be industry specific, one that invests worldwide or one that aims to do something specific. You should then do some research on the recommended funds, read the prospectus and if it suits you invest.

Fund supermarkets will charge a fee to set up an ISA and invest it for you but this is how many people do it as it can be cheaper than going direct to the fund management company. We would advise people to check the fees of several fund supermarkets before selecting one.

Stocks and shares ISA’s can also be set up through a platform and be used to invest in many things such as company shares, funds and investment trusts.

Tax advantages
When you invest in shares outside an ISA you will have to pay tax on any profit you make over a certain amount. With an ISA you don’t pay any tax on profits, regardless of how much you make.

Investors do not pay any personal tax on income or gains, but ISA’s do pay unrecoverable tax on income from stocks & shares received by the ISA managers.