Isa - Tax-Free And Safe Way Of Investment

By: Sarah Conner Published: Thursday, April 15, 2010

ISA or Individual Saving Account is a financial plan in UK for investment and savings along with favorable tax. In 1999 after the exemption of PEPs (Personal Equity Plans) and TESSAs (Tax-Exempt Special Savings Accounts) this product was introduced to target maximum number of citizens as compare to previous ones. Initially there were Mini, Maxi and TESSA-only ISAs. Last ones were created for the reinvestment of the original invested capital in a TESSA and a new TOISA could be formed only for the complete transfer of funds from old one. No new TESSA could be created after 1999 so all old ones’ five year term ended by 2004. Apart from that, in 2007 there is no more distinction between Mini and Maxi ISAs.

A UK resident who has crossed the number of 16 in age is eligible to go for an ISA. Mainly there are two types of investment component where first one is to invest cash money that is more or less like an ordinary savings account besides, tax-free status. Other ISA component includes stock and share investment and this process could be self operated or by stock brokers like unit trust, OEIC and investment trust. After few amendments from 2008/09 it could be possible to transfer form cash ISA to a stock and share one but not vice versa without the restrictions of making contributions to Maxi or Mini ISA. A flat 20% interest is charged on cash held in stock and share components but all gained capital and income are tax-free.

Certain restrictions are there about investment in ISAs in a tax year that can vary according to type of account and cumulative amount of investment during a year (6 April to 5 April). Initially only minimum 18 years old UK resident could go for ISA as well as either cash or stock component could be chosen to invest in a Mini account while Maxi one can hold both. Recently in March 2010 it was announced by the Chancellor of the Exchequer Alistair Darling that ISA subscription limits are expected to be increased in coming years with inflation which can go up to £120 to simplify monthly payment schemes.