What Is An Investment ISA?
The ISA (Individual Savings Account) was created by the Government in 1999 as a way of encouraging UK tax payers to start saving for the future. Divided into a cash or equity investment forms, the investment ISA enables you to put money into a range of stocks and shares as well as unit trusts, investments trusts and government and corporate bonds all under the ISA umbrella.
In tax year 2012/13 each qualifying UK tax payers is able to place up to £11,280 into stocks and shares ISA or split their investment between this and a cash ISA investment. This allowance is now expected to rise in line with the Retail Price Index year on year and has risen by £600 since 2011/2012.
Unlike a Cash ISA, the value of your investment within a stocks and shares ISA will fluctuate with changes in the stock market which means that though you have more potential to gain than you do with a standard savings account, you are also at risk of the value of your capital going down.
The Tax Benefits of an Investment ISA
As with the standard cash ISA, any gains you make within your fund are completely free of income and capital gains tax which makes them one of the most tax efficient forms of investment for most UK residents.
However when buying certain share-based investments within the ISA account there maybe some liability for standard rate tax payers, but this would be equal to the same charges made outside the ISA status and can be completely avoided by investing only in interest bearing products within your portfolio.
The Cost of an Investment ISA
As all stocks and shares within the ISA must be purchased by a fund manager, you will be liable for both the administration charges to cover your investment. When choosing the ISA to suit you make sure that you select a product that charges fees at a level that is acceptable to you and the investment you intend to make.
Transferring Into An Investment ISA
Although the limit for investment for any one year is set by the annual allowance, it is possible to transfer funds into an Investment ISA from previous years cash ISAs. This will enable you to take your funds out of potentially lower rate accounts and transfer them into a facility that could offer much greater rewards, but this must also be balanced with the extra level of risk that is then incurred.
It is also possible to transfer any cash ISA for the existing financial year into an investment ISA but this must be done in one lump sum and cannot repeated again in the year.