ISA

ISA stands for Individual Savings Account. They were launched by the government on 6 April 1999 to replace PEPs and TESSAs. ISAs are investment savings account with a tax efficient wrapper.

The word "wrapper" refers to the rules which provide the tax protection to the investments held in the account. The ISA account itself is not an investment it is what you hold within that account.

With ISA you can hold: cash and stocks & shares (including listed shares and investments in unit trusts and OEICs). You can either hold these components together in a Maxi ISA or separately in a Mini ISA.

Limits and Eligibity

In any one tax year (which runs from April 6th to the following April 5th) the maximum investment allowed in a Maxi ISA is £7,000 per financial year. You can have two Mini ISAs (one cash and one stocks & shares). These can be with two different ISA providers if you wish. You cannot have both a Maxi ISA and one or more Mini ISAs in the same tax year. The maximum investment limits per tax year (which runs from April 6th to the following April 5th) in a Mini ISA are:
    · up to £3,000 in a Cash Mini ISA; and/or
    · up to £4,000 in a Stocks and Shares Mini ISA (from 5th April 2005).

You can invest a maximum total investment of £7000 in Mini ISAs in one tax year but you cannot take out a Mini ISA and a Maxi ISA in one tax year. And you cannot take out more than one Mini ISA of the same type (i.e. two stocks & shares Mini ISAs) in one tax year.
You must be over 18 years old (except for cash ISAs were you must be over 16 years old); and be normally resident and ordinarily resident in the United Kingdom, or if not so resident performing duties (or married to a person who performs such duties) as a Crown employee serving overseas by virtue of section 132(4)(a) of the Income and Corporation Taxes Act 1998 (Crown employees serving overseas); and not have opened another Maxi ISA or another Mini ISA of the same component (i.e. cash* or stocks & shares) in the current tax year; and have made a valid application; and have made a valid ISA subscription (that is a payment/deposit).

Tax

Although we cannot address your particular tax situation without discussing your circumstances fully the current legislation on an ISA is that since 6th April 2004 the payable tax credit of 10%, applicable to dividends from UK shares within an ISA or PEP, has ceased.

Your ISA provider can claim a 20% tax credit on fixed interest payments from bonds, all interest on cash component is tax free, all capital gains are free of capital gains tax, however, losses made in an ISA cannot be offset against gains made outside an ISA.

Risks

The value of investments or income from them may go down as well as up.

Past performance of an investment is not necessarily a guide to its performance in the future.

The value of investments may rise or fall due to the volatility of world markets, interest rates and capital values or, for investments held in overseas markets, changes in the rate of exchange in the currency in which the investments are denominated. Levels and bases of, and reliefs from, taxation are subject to change as UK legislation and regulations and the UK tax regime are amended from time to time.

Term

There is no term limit. Your money can stay invested for as long as you like.