Q: What is an Individual Savings Account (ISA)?
A: ISAs were set up to give you tax advantages on your savings and investments. There are two types of ISA: Cash and Stocks & Shares. You can earn interest free of UK income tax with a Cash ISA and interest free of UK income and capital gains tax with a Stocks & Shares ISA.

Q: Am I eligible for an ISA?
A: To open an ISA you have to be aged
16 or over if the ISA is a Cash ISA or 18 or over if the ISA is a Stocks & Shares ISA. You have to be resident and ordinarily resident in the UK for tax purposes, or a Crown employee, such as a diplomat or a member of the armed forces, who is working overseas and paid by the government.

Q: What is the difference between a Cash ISA and a Stocks & Shares ISA?
A: A Cash ISA is like a normal savings account, but you don’t have to pay UK income tax on your interest, provided all ISA conditions are met. Some Cash ISAs are offered as a fixed-term or fixed-rate account.
A Stocks & Shares ISA allows you to purchase investments in a ‘tax-efficient’ manner – your returns are free of UK Income and Capital Gains Tax. As your money is invested directly or indirectly in stocks and shares, the value of your investment can rise or fall so you could end up with less than you invested. The tax credit on an ISA dividend is not recoverable.
The Stocks & Shares ISA wrapper lets you invest in funds that have no fixed maturity date, although they are designed to be held for the medium to long term (usually five to ten years). Their value at any particular time will always depend on how well the underlying investments perform, so if this has been poor it could be less than the original amount you invested, irrespective of how long you have held the investment.

Q: How much can I contribute to an ISA?
A: Your annual ISA allowance is £10,680 in the 2011/2012 tax year. Of this, up to £5,340 can be saved in a Cash ISA with one provider. All of your allowance or the remainder can be invested in a Stocks & Shares ISA. Bear in mind that the value of tax relief depends on individual circumstances and tax rates are subject to change; if you don’t pay tax, you will not benefit from any tax relief. Annual limits are also subject to review and the government’s favourable tax treatment of ISAs may not be maintained.

Q: What are my annual ISA allowance options?
A: Individual Savings Account Subscription Limits

Tax Year 2011/2012
Cash ISA Limit £5,340
Stocks & Shares ISA Limit £10,680
Total ISA Limit £10,680

Q: I have used all my annual Cash ISA allowance for this tax year. Can I still contribute more?
A: As your total ISA allowance is £10,680, if appropriate, you could still invest a further £5,340 in a Stocks & Shares ISA.

Q: How many ISAs can I have?
A: There is no limit on the number of ISAs you can hold, but you can only open and subscribe to one Cash ISA and one Stocks & Shares ISA per tax year. This could be a Cash ISA with one provider and a Stocks & Shares ISA with a different provider, or both with the same provider. However, be sure that you don’t exceed the maximum amount you’re allowed to put into ISAs each year.

Q: What is a Junior ISA?
A: A Junior ISA is a tax-efficient way to save for a child’s future and can be set up in the child’s name by a parent or guardian. You can set up a Stocks & Shares ISA or Cash ISA or a combination of both and any investment growth is free of UK income and capital gains tax. The annual investment limit is currently £3,600, but this will rise in line with inflation from 2013. The money is locked away until the child reaches the age of 18, giving the investment time to grow. The child is the beneficial owner of the Junior ISA. Children are not eligible for a Junior ISA if they have or were eligible for a Child Trust fund. ν

The value of these investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.