A Guide to ISAs
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This information relates to the 2015/16 tax year and we'll shortly be publishing the updated Guides for 2016/17: do come back again soon for the new edition.
Our straightforward guide shows you how to make the most of your ISA with information on rules and allowances, how to get started, why tax-efficient investing is important to making the most of your investments and how we can help you.
You can click on the copy below to read in full, or see below it for an extract of the most important information.
ISAs - The Basics
ISAs – the basics
Cash, Shares … or both?
Choosing the best ISA for you, either a Cash ISA or a Shares ISA will be down to your personal circumstances, goals, financial objectives and approach to risk. Do remember, however, it’s not a case of one or the other: many people will invest the ISA allowance 2015 in both a Cash ISA and a Shares ISA. That’s because it’s a good idea to have a savings pot you can quickly dip into should you need to, alongside those longer-term savings that you’re putting away for tomorrow.
But holding too much of your longer-term ISA savings in cash can mean your money isn’t working as hard for you as it could be. Investing in shares, funds or other investments gives you the potential for higher returns, and faster growth, but means you’ll be taking on a different set of risks. Getting the right balance to suit your personal ambitions, objectives and circumstances is the key.
Why have an ISA?
- Dividends paid from stocks and shares are received net of a 10% ‘tax credit’ deducted at source– which cannot be reclaimed. This is the same whether held in an ISA account or not, so for a basic rate tax payer there’s no advantage.
- For higher-rate and additional-rate tax payers however, that’s a very useful tax saving of 22.5% and 27.5% respectively.
- When it comes to the time that you want to draw money out of your ISA savings, there’s also no income tax – making it a good way to top-up income in retirement.
Capital Gains Tax (CGT)
- No tax to pay on gains made in your ISA.
- That’s a valuable saving of 18% as a basic rate taxpayer, or 28% as a higher or additional rate tax payer.
- Any losses made on investments in your ISA can’t be used to offset capital gains on investments outside an ISA.
|Cash ISA ||Shares ISA ||Junior ISA|
|Available to UK residents ||16+||18+||Born on or after 3 January 2011*|
|Annual ISA limits: 2014/2015 ||Up to £15,000 in total, any combination ||Up to £4,000 in total, in any combination|
|2015/2016 ||Up to £15,240 in total, any combination||Up to £4,080 in total, in any combination|
|Tax-free income ||Y - Interest paid gross ||Y - Net of 10% dividend tax ||Y - Interest paid gross, dividends net of 10% tax|
|Tax-free capital growth ||N||Y||N Cash|
|Cash withdrawal ||Can range from Instant Access to Fixed Term ||Instant Access on cash balances or once sales have been 'settled' ||Cash - can range from Instant Access to Fixed Term Shares - Instant Access|
|Move funds between Cash and Shares ||Y||Y||Y|
|Available from Interactive Investor ||N||Y||N Cash|
*See Junior ISA for more details
Getting started - Choosing the best ISA provider for you
For most savers, the interest rate and accessibility will be the key concerns. Look out for any maximum or minimum balance restrictions, limits or penalties on withdrawals, or on how you manage your account.
Cash savings are covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person, per organisation, so that’s a few years of ISA subscriptions. But this limit includes any other accounts you have with the organisation so remember to take those into account too.
Key things to consider will include:
• The range of investments available to you – and easy ways to find them.
• Some ISA providers restrict the range of investment you can hold in their ISA. For example, an ISA provided by a Fund Manager might only allow funds issued by the group.
• If, like most ISA investors, you want a mix of investment types – from shares, to funds, bonds and ETFs (or even some of the more adventurous varieties) - make sure your provider has them on offer. And that it’s easy to choose the specific ones you want.
• ISA Transfer – can you transfer part of your ISA to another provider- or must you move the whole account?
• This can be particularly important if you want to take advantage of the ability to move some of your money from a Cash ISA to a Shares ISA, or back the other way.
• When it comes to trading, a cheaper dealing fee could actually be a poor deal.
o Paying more for a purchase, or receiving less on a sale, can cost you more than shaving a couple of pounds off the dealing fee. What’s the provider’s approach to ensuring you get the best price – and how much might you benefit on a typical purchase or sale?
• The annual cost of running your account – including administration fees, trading fees and ad hoc charges.
o Think about how often you’ll be buying or selling investments over a typical year and work out the cost of running your account with different providers.
The Interactive Investor ISA
• A fair, clear and flat investment administration fee …
• No percentage charges on your investments.
• And dealing credit too.
• Our trading fees are just as straightforward
• And a host of ideas to inspire you
• Get started from just £20 a month
Sounds good? Open your Interactive Investor ISA
Starting a new ISA Account with us is quick and easy … just apply online at our website and you can be up and running in a few minutes.
Bring all your ISAs together
If you already have an ISA elsewhere, you can bring them all together with us. Having your investments together in one place is not just convenient, it makes good sense too as it enables you to better manage your overall portfolio.
Initiating an ISA transfer.
Having opened your account, setting the ball rolling is easy.
• Download, complete and return our ISA Transfer form – you’ll need a separate form for each ISA (or partial ISA) you want to transfer.
That’s it! We’ll take it from there, liaising with your existing provider to complete the transfer.