ISA’s Explained

What is an ISA?

It’s an Individual Savings Account, the tax-exempt savings plan that replaced PEPs and TESSAs in April 1999.

An ISA is not itself an investment - it's a flexible 'wrapper' under which a wide range of investments can be made, free of capital gains or income tax.  You can choose from two types of ISA – Stocks & Shares (shares, bonds or funds based on shares, bonds or property) and Cash.

Which type should I choose?

That depends on your own needs.  Baker Gladstone & York Direct provide access to Stocks and Shares ISAs.  If you are looking for long term returns (over at least five years) and are willing to take some risk with your capital then consider Stocks and Shares ISAs.  If you are unsure then please contact us.

Why invest in a Stocks and Shares ISA?

Even the Chancellor has admitted that taxes are going to rise, so it is good planning that you make the most of any tax allowances that are available to you.

The current ISA limits are:

• £10,200 for those aged 50 and over on 5th April 2010. Up to £5,100 of that can be saved in cash with one provider. The rest can be invested in a Stocks & Shares ISA with either the same or a different provider.

Once invested in an ISA, the tax man has no future claim to any capital growth or income that you receive. In fact you do not even need to mention it on your tax return.

You can invest in two separate ISAs in any one tax year: a cash ISA and a stocks and shares ISA. This can be with the same or different providers.

Cash ISAs are just like a deposit account.  Your capital is guaranteed and additionally the interest is tax free.

Stocks and Shares ISAs allow you to take higher risks.  Stock market investments can fall in value as well as rise, so you could get back less than you invest.  However over the longer term funds and shares have the potential to produce significantly higher returns.

If you choose to invest the whole allowance in a Stocks & Shares ISA, this can only be with one provider in any one tax year.

Transferring an ISA 

You can transfer money from a cash ISA to an Stocks & Shares ISA, but not the other way round. Unfortunately you cannot close your old ISA and start a new one; you would lose the tax advantage. ISAs must always be transferred instead; this maintains all the tax advantages.

Issues  to consider

• You might see marketing from firms encouraging you to make full use of your ISA limits, or transfer money from cash ISAs into stocks & shares  ISAs. It is a competitive market, so make sure you understand what will happen to your money and what restrictions there might be.
• Interest rates are low at the moment so the idea of putting more of your money in investments might appeal.  But make sure you understand how your money will be invested.
• If you decide to switch from cash to stocks & shares, make sure you are happy with the extra risk and the fact you could lose some of your money.

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