As it is the start of the new financial year I would like to have a simplified look at ISA’s as I know these can cause a lot of confusion
What is an ISA (Individual Savings Account)? Simply put an ISA is a tax advantaged savings account.
Each tax year every eligible individual is allocated an ISA allowance from the government, interest or growth generated from these savings will enjoy tax advantages.
There are two types of ISA, Cash ISA’s and Stocks and Shares ISA’s. With Cash ISA’s your investment is as safe as money in the bank (if it is safe there!), however with the Stocks and Shares ISA the value can fluctuate with the markets.
For the 2012/13 tax year the total individual allowance is £11,280.00. This can be invested solely in a Stocks and Shares ISA, or split between Cash and Stocks. The only catch is that only half of this (£5,640.00) can be invested in cash ISA’s, therefore if you want to avoid Stocks and Shares you can only use half your allowance. You can buy your ISA at any time during the financial year for which the allowance is credited, it does however make sense to purchase as early as you can in the financial year to get the full benefit.
The interest on cash ISA’s can vary from provider to provider and may only be guaranteed for a set period of time, normally until the end of the financial year. Cash ISA providers are generally Banks and Building Societies.
The size of your ISA fund is unlimited; however the entitlement is limited by the annual allowances. If you use your full entitlement it is possible to have tax advantaged savings of thousands of pounds after a few years.
A Junior ISA is available with a maximum yearly allowance of £3,600.00.
I hope all of this has helped make sense of ISA’s if you want further information and professional advice please feel free to follow the link below:
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