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An ISA can either be Cash or Stocks and Shares, or a combination of both

Acceptable investment holdings of each component of the ISA are:

  • Stocks & Shares, which may include authorised Unit Trusts, Open Ended Investment Companies, Investments Trusts, Gilts, Corporate Bonds and Individual Company Shares.
  • Shares acquired by employees from an approved all-employee savings-related share option and/or profit sharing scheme’ may also be transferred into this component.
  • Cash, which may include certain Bank or Building Society deposits, specified National Savings accounts and Cash Units Trusts.

What are the Subscription Limits?

2015/2016 ISA (per annum)

Cash £15,240
Stocks & Shares £15,240 less any payment to the cash component
Overall Maximum £15,240
Monthly Maximum £1,270 per month
Junior ISA £4,080

Flexibility and Withdrawals

ISAs in general are very flexible investment vehicles with no fixed-term and withdrawals can be made at any time. However, specific products may have certain limitations on the access available to their investment.  For example, while you can normally withdraw money from a Cash ISA within normal banking time scales, there may be a penalty if an investor has elected to subscribe to a notice account in return for a higher rate of interest.

Additionally, subscribers to a Stocks & Shares ISA must bear in mind that an ISA is an equity based investment and, therefore, returns will fluctuate. The value of the ISA can fall as well as rise and there can be no guarantee as to future returns.

The ISA does provide a spread of risk across a pool of equities and long-term past performance has demonstrated that equity investment can provide a hedge against inflation. However, past performance can provide no guarantee as to future returns. A Stocks & Shares ISA must, therefore, be considered as a medium to long-term (5 to 7 years plus) investment, and in the majority of cases investors should not be considering needing access to their capital prior to this time scale.

Can I have more than one ISA provider?

You are allowed to have a different ISA provider in each new tax year, for example, if you have taken out a Cash ISA with one provider you can effect a Stock and Share ISA with the same or different provider. In addition you may also transfer all or part of an investment from one ISA. Payments made to the Cash component of an ISA will be able to be transferred to an ISA Stocks and Shares component.

You are able to transfer from a Stocks & Shares ISA to a Cash ISA, and vice versa. The investment can be made by single lump sum contributions, by regular monthly/yearly contributions or by mixture of the two.

Contributions paid into an ISA do not attract tax relief.

Transferring an ISA

Investors can transfer:

  • Current year subscriptions in whole, and/or
  • Previous years’ investments in whole or in part.

ISA savers will be able to transfer money saved in their Cash ISA to their Stock and Share ISA.  Such transfer must be the whole amount saved in the Cash ISA for that tax year, up to the day of the transfer. If you transferred from a Cash ISA to a Stock and Shares ISA it will be treated as though your Cash ISA had not existed for that tax year and you would still be able to invest into a Cash ISA up to the maximum amount for that tax year.

Transfers of previous years’ investments have no effect on the current year’s subscription limits providing you have not withdrawn the money yourself and you have asked, for example, the new Cash ISA provider to have arranged the transfer. If you withdraw the current year’s subscriptions from your Cash ISA and then reinvest the money yourself into a new Cash ISA this will count towards your annual ISA allowance.

What is the tax position?

  • ISAs are extremely tax-efficient
  • You do not pay any income or capital gains tax on returns from an ISA
  • You do not have to declare ISA income and gains on a tax return
  • Any interest earned on the cash component is paid or accumulated gross
  • The investment funds incur no liability to Capital Gains Tax

ISA Inheritability

Since 3rd December 2014, surviving spouse’s have an additional ISA allowance equal to the amount the deceased spouse had in their ISA, which can be used on or after 6th April 2015. There will be no impact on the spouse’s/civil partner’s own ISA annual allowance.

ISA accounts left to a spouse or civil partner will continue to pass IHT free, the transfer itself being covered by spousal exemption. The difference now being that the continuing returns on a deceased partner’s savings will be tax free.

 

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