Investing in a wide range of different tax-efficient investments
From July 2014, Individual Savings Accounts (ISAs) can now be used to hold stocks and shares or cash, or any combination of these, up to the current annual limit. An ISA is a ‘wrapper’ that can be used to help save you tax.
A Stocks & Shares ISA is a wrapper that can be put around a wide range of different investment products to help save you tax.
A number of different types of investment can be held in an ISA, including:
Unit trusts
OEICs (Open-Ended Investment Companies)
Investment trusts
Exchange traded funds
Corporate and government bonds
Individual stocks and shares
Whole allowance
You can pay a total of £20,000 a year into an ISA in the current 2017/18 tax year. The whole allowance of £20,000 can be paid into a Stocks & Shares ISA, a Cash ISA, or a combination of these.
Your yearly ISA allowance expires at the end of the tax year, and any unused allowance will be lost. It can’t be rolled over to the following year. You can choose between making a lump sum investment and/or making regular or ad hoc contributions throughout the tax year.
Investment value
Any increase in value of the investments in your Stocks & Shares ISA is free of Capital Gains Tax, and most income is tax-efficient.
You can only pay into one Stocks & Shares ISA in each tax year, but you can open a new ISA with a different provider each year if you want to. You don’t have to use the same provider for your Cash ISA if you have one.
ISA rules on deceased spouse ISA transfers
ISA rules introduced in April 2015 now permit the surviving partner of a spouse or registered civil partner who died on or after 3 December 2014 to receive an additional ISA allowance equal to the value of the deceased’s ISA savings at the time of death.
Transferring ISAs
Should you wish to switch your current or previous year’s ISA to a different provider’s ISA while simultaneously keeping future tax benefits intact, you have to arrange for a transfer rather than selling and reinvesting.
All ISA providers have to allow transfers out, but they don’t have to allow transfers in. You can transfer money from a Cash ISA to a Stocks & Shares ISA.
If you transfer an ISA that you have paid into during the current tax year to a new provider, you must transfer the whole balance. For ISAs from previous years, you can choose how much to transfer.
For most of the investments you would put into a Stocks & Shares ISA, the value can go can go down as well as up, and you might get back less than you invested. The level of risk in your Stocks & Shares ISA will depend on the investments you choose to put into it.
