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isa accounts

Your Questions Answered

What is an ISA?

How is my money invested?

Who will my money be invested with?

How much am I allowed to invest?

How accessible is my money?

What happens to my PEPs?

Can't I invest that cash?

Can I transfer proceeds from my stocks and shares ISA into my cash ISA?

What are Stakeholder standards?

Q. What is an ISA

A. An ISA is a savings vehicle that will allow your savings to grow free from any Income or Capital Gains Tax. Designed to replace PEPs and TESSAs, ISAs became available from 6^th April 1999. Like the accounts they replaced there are maximum annual limits on the amounts that can be invested into these accounts.

Q. How is my money invested?

A. You can invest in ISAs in two ways

CASH – Your money may be invested into bank or building society accounts or some National Savings products. Interest will be paid on the investment and will be tax-free.

STOCKS & SHARES – Your money may be invested into pooled investments such as unit trusts and investment trusts or into individual stocks and shares if you prefer.

Q. Who will my money be invested with?

A. There are a range of product providers from banks and building societies through to assurance companies and fund managers. You have a choice in the way that your money is invested.

Q. How much am I allowed to invest?

A. As with PEPs and TESSAs there will be an annual limit on the amount you will be allowed to invest each tax year. For the tax year 2008/2009 the limits are set at a total of £7,200 and the mini and maxi distinctions have been eliminated Up to £3,600 of the £7,200 allowance can be held in a cash ISA, with any remaining allowance (i.e. up to the full £7,200 if a cash ISA is not used) available to invest with either the same or a different provider in a stocks and shares ISA. Under the new rules, mini cash ISAs, TESSA-only ISAs (TOISAs) and the cash components of maxi-ISAs will become cash ISAs, while mini stocks and shares ISAs and the stocks and shares components of maxi-ISAs will become stocks and shares ISAs.

If you wish, you can transfer all of the value of current and previous tax years subscriptions in your ISA to another ISA provider. Partial transfers are not permitted.

Q. How accessible is my money?

A. You may withdraw your money at any time without any loss of the tax benefit received. However, once your investment limit has been reached for the tax year in question you cannot re-invest any money withdrawn at a later stage i.e. if you had invested the full £3,600 then withdrew £500, you would not be able to re-invest that £500 in the same tax year. Individual product providers may impose their own restriction on withdrawals so it is important to study the individual account terms and conditions. If your investment is in stocks and shares you should be aware that the value of your investment can go down as well as up and you should be looking to invest for the medium to long term. You may not get back as much as you invested particularly in the early stages of the plan.

Q. What happens to my PEPs?

A. Since the demise of PEPs in 1999, no new subscriptions have been allowed, but rollover vehicles have been available for PEP transfers. From 6 April, all PEP investments will be re-badged as stocks and shares ISAs, and investors will be able to continue to contribute to them, taking advantage of the wider range of permitted investments in ISAs, so long as they are not contributing to another stocks and shares ISA in the same tax year.

Your existing PEPs can, if you wish, be merged with your existing ISAs. If there is uninvested cash in the PEP, this will in future be taxed at 20%, as has always been the case with stocks and shares ISAs.

Q. Can't I invest that cash?

A. Money can be transferred from a cash ISA to a stocks and shares ISA under the new rules. You can transfer some or all of the money you have saved in cash ISAs in previous tax years to your stocks and shares ISA without losing the current tax year's allowance. In the current tax year you can transfer all, but not part, of the cash saved. However, you will be able to make further subscriptions to your cash ISA that exceed the £3,600 limit, providing your ISA subscriptions for the year remain within the £7,200 limit. For example, if you had saved £1,000 and transferred it to your stocks and shares ISA, you could put another £3,600 into your cash ISA as well as a further £2,600 into your stocks and shares ISA.

You must complete the appropriate transfer forms and instruct your ISA provider to make the transfer: If you simply withdraw funds from your cash ISA to invest in your stocks and shares ISA, this will count against your annual allowance.

Q. Can I transfer proceeds from my stocks and shares ISA into my cash ISA?

A. No. As the holdings in a stocks and shares ISA are free from capital gains tax, it would in theory be possible to sell them and reinvest the proceeds in a cash ISA which is why it is not permitted.

Q. What are Stakeholder standards?

A. The Government has introduced a set of standards by which all Stakeholder marked products must comply:-

CHARGES - No account charges

ACCESS – A minimum investment limit of £1 & instant access to your money

TERMS AND CONDITIONS – A variable interest rate guaranteed to be no lower than 1% below Bank of England base rate.

The Stakeholder mark is designed to allay some of the concerns about investing in financial products but does not give a guarantee of investment performance. Individual providers will be able to decide whether they wish to offer a Stakeholder standard product and a non-Stakeholder marked product may offer equal or better value depending on your circumstances.

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