CASH ISAs
ISA’s were introduced on the 6th April 1999. Upon introduction in order to encourage savings the Government guaranteed that ISAs would be available as a tax free investment for at least 10 years. Cash ISAs are one of the two components of an Individual Savings Account. Until 5th April 2007 you could save up to £3,000 each tax year. The Government have now reviewed the maximum limit and from 6 April 2007 the limit has been set to £3,600.Whilst your money is held in a Cash ISA the interest added to your account, is non-taxable, which means you can keep any money you earn from your investment without having to pay tax on any gains made. ~This applies to everyone irrespective of the tax band applicable to you although special rules apply as explained below.
(Please note: there are special rules for people that do not pay Income Tax and choose to save or invest in Bank / Building Society accounts. We will be able to explain these rules – please contact us).
Who can have a Cash ISA plan?
There are certain rules regarding the eligibility for an ISA plan and these carry across to Cash ISAs. In order to make a contribution to an ISA plan you must be a UK tax resident (or perhaps a Crown Employee that is serving overseas).
In addition to this there are age limits:
You must be aged 16 or over before you are allowed to open a Cash ISA account. Once the account is open you are limited to making deposits of no more than £3,000 in any tax year or £3,600 after 6 April 2008. If you are aged over 16 but under 18 then the plan can only be a Cash Mini ISA. Once you are 18 you can invest in either a Cash Mini ISA or into the cash component of a Maxi ISA.
If you have any queries about your eligibility for an ISA please contact us.
Why a Cash ISA?
ISAs are an excellent way for taxpayers to save. Not only is any interest added to your account without any deduction for tax but also you can have access to your money whenever you like without having to advice the Tax Office that you have any type of ISA.
What are Maxi and Mini ISAs?
Not only are there two different components of an ISA plan (Cash and Stocks and Shares) but there are also two different versions of an ISA. These are known as Maxi and Mini ISAs. You must always establish which version of an ISA that you are contributing to when you first start a plan, as this may affect the amount you can invest in the future.
During any tax year you can invest in a single ISA plan or you may spread your money across a number of Mini ISAs (the maximum number is three per tax year). Whether or not you have more than one version of an ISA; the overall annual investment limit will remain the same at £7,000 for the current tax year. However from 6 April 2008 the limit will be raised to £7,200.
It is common for the Cash ISAs offered by Banks or Building Societies to be established as Mini ISAs. Bear this in mind if you are intending to make a full £7,000 subscription during this tax year (or £7,200 from 8 April 2008). This is because the rules do not allow you to subscribe to both a Mini ISA and a Maxi ISA during the same tax year. Many of the Stock and Shares ISAs marketed by the Investment Groups are only available as Maxi ISAs.
Is there a limit on the amount of ISAs I can have?
Over a period of time you may hold many different ISA plans, although you may only contribute (subscribe), during any single tax year, to either one Maxi ISA or up to two Mini ISA’s - one for each type of ISA.
Each tax year you may choose to contribute to an ISA product (either Maxi or Mini) from a different ISA provider to those you have contributed to before.
What are the tax benefits of a Cash ISA?
Under current legislation ISAs have considerable tax incentives over other forms of investments or savings
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Interest will be added to your account without the deduction of any tax
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If you withdraw this interest to spend as income, then you have no liability to income tax on the money you receive from your ISA investment
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You may withdraw your money at any time without losing any of the tax advantages
There is no requirement for you to declare interest that is added to your ISA plan to the Inland Revenue. You do not even need to mention that you have an ISA on your Tax Return.
How long can I keep my Cash ISA plan?
One of the major attractions of all ISA plans is that they offer you excellent access to your money. You can withdraw your money at any time without losing any of the tax relief that has been granted to your plan.
Some ISA plans may run for a fixed period or require you to give notice of withdrawal. With these particular plans you could lose some interest or bonuses should you elect to withdraw your money early. You should always read the terms of your ISA plan carefully and pay particular attention to any conditions applying to withdrawing of your money.
What are stakeholder ISAs?
On the introduction of ISAs in 1999, the Government laid down a set of standards for ISA products. These standards are designed to help savers/investors find an ISA that offers reasonable Charges, easy Access (‘CAT’) to the money invested and fair product Terms. The advantage to you of finding a product that complies with the CAT standards is that you can be certain the product terms will not suddenly change for the worse after you have invested in the product.
The ISA provider is required to make it clear whether or not the product complies with the CAT standards.
Stakeholder conditions
Different standards apply to the different ISA components. Any provider that wishes to offer a CAT standard ISA plan must comply with the following rules:
Cash ISAs
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No charges unless you ask for extra services, such as additional statements
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The minimum investment or withdrawal amount is £10. Should you wish to withdraw money the maximum notice period you will be required to give is seven days
Interest on your savings must be no more than 2% below the Bank of England Base Lending Rate. If Base Rates rise, the interest on CAT-standard ISAs must be increased within one calendar month, downward movements in interest rates can be slower than this.
What happens if I die?
Any ISA plans you hold will end on the date of your death. No tax will be due on any interest added to the ISA up to that date. However, if the plan continues after your death, then your personal representatives will be liable for taxation on any subsequent interest added.
The value of any ISA plans will be added to the rest of your assets when calculating the value of your estate for Inheritance Tax purposes.
Should you wish to include new investment or savings opportunities that are not provided from your current ISA manager then you may have to transfer your money to another manager.
I have a TESSA investment plan, may I transfer it to a Cash ISA?
Tax-exempt special savings accounts (TESSA’s) have been discontinued, and the last TESSA’s matured on 5 April 2004. You had six months from the date your TESSA matured (in other words up to 5 October 2004 in the case of the very last TESSA’s) within which to transfer the capital (but not the interest) to a tax-free ISA.
