ISA Changes
The Probe - March 2007
Individual Savings Accounts (ISA’s) offer the flexibility to control your own investments within a tax-advantaged wrapper where invested funds grow free of UK Capital Gains Tax (CGT).
ISAs allow you to choose from a wide range of investments from UK Equities, International Equities, Gilts, Bonds, Investment Trusts, Unit Trusts and Exchange Traded Funds, to Cash.
Since their launch in 1999 as a replacement for Personal Equity Plans (PEP’s) and Tax Exempt Special Savings Accounts (TESSA’s), ISA’s have become a popular product with investors in the UK. In late 2006 the Chancellor confirmed that the ISA would continue to run indefinitely past 2010, recognising that these accounts have an important part to play in encouraging long-term savings and investment.
Although the benefits of an ISA will be greatest for an investor making significant capital gains (above the annual allowance, set at £8,800 for the 2007/8 tax year), they can also be a cost effective way to make regular contributions over the longer term. Even if your portfolio is relatively small today, these sums if invested over a medium to long term can become a significant sum.
For an ISA to be a useful way to make regular smaller investments, the charges to manage it and trade within it must be competitive.
Tax advantages of ISA’s
Within an ISA, gains on invested funds are tax-free and there is no further tax to pay on any income received from dividends or other sources. Thanks to this tax-advantaged status, ISA’s don’t even need to be reported to the taxman!
New rules for ISA’s in 2007/8
Under new rules due to come into force this April, the mini/maxi ISA distinction will be removed, allowing investors to put up to £7,000 into stocks and shares each year (up from the current £4,000 stocks and shares miniISA subscription allowance). In addition, cash ISA’s from previous tax years can be switched into stocks and shares ISA’s, as can PEP’s, allowing investors with multiple plans to merge them together and pay a single management charge.
Bearing in mind these changes, there has never been a better time to review your existing portfolio. Always ensure you’re not investing into areas that don’t compliment your individual risk profile.