Elson Associates - stocks & shares ISAs

Stocks and shares ISAs

The government wants us to save, this is why they offer us incentives. However, there really aren't that many tax giveaways that are widely available to everyone. The Individual Savings account represents one of the best available tax breaks to all UK residents. This savings vehicle started life in 1997 and was brought in by the then chancellor of the exchequer, Nigel Lawson. The Personal Equity Plan (PEP) had a tax free limit of £6,000 with no more than 25% being invested in overseas equities. Back then you could also take out a single company PEP for £3,000 in a company such as BT, Shell, Rolls Royce etc.

Since its humble beginnings, it has now grown into a tax free allowance of £20,000 which can be invested in stocks and shares, cash or any combination of the two. This allows you to build up, over time, a considerable sized portfolio. And, even if you are saving just £25 per month, this could also turn into a large savings pot which will be completely free of any capital gains tax!

An ISA (Individual Savings Account) is a tax-efficient wrapper that can be applied to savings and investments. This means that any income or dividends that you receive from investments or savings along with any capital gains is tax-free. Anyone aged 18 or over can invest in a stocks and shares ISA, however you only need to be 16 to invest in a cash ISA.
The current ISA allowance (which has been in effect since 6 April 2017) is £20,000 and will be applicable until the end of each tax year (5 April). If you do not invest your full allowance during the tax year, you cannot carry over any remaining amounts into the next tax year.
The current ISA offers flexibility that has not previously been available to investors. You can now choose to split your allowance between cash and stocks & shares as you wish. For instance, you could invest the full £20,000 allowance into a cash OR a stocks & shares ISA. Alternatively, you could invest your allowance in any combination of amounts between a cash and stocks & shares ISA up to the £20,000 allowance.
ISA rules state that you can only subscribe to one ISA provider in any one tax year. However, if you choose to invest with a platform (also known as a 'fund supermarket') such as Aegon or Fidelity FundsNetwork, you have the opportunity to invest in a wide range of funds from various fund providers in the same tax year.
The current ISA allows for investors to transfer from a cash ISA to a stocks & shares ISA and vice versa. When it comes to transferring a previous year's ISA, you can transfer from one provider to another whilst retaining the ISA wrapper. This will not affect your allowance for the current tax year. Please note that if you wish to transfer an ISA, you should not encash the investment yourself as any investment you make into an ISA after withdrawing funds will count towards your £20,000 allowance.

Investors can now pass on their Individual Savings Accounts (ISAs) to their spouse when they die and keep their tax free status.

Previous rules had removed the tax-exempt status of ISAs on the saver's death, meaning their widow would have to start paying tax on the total amount held within the ISA wrapper. We believe this is a welcome and long overdue change which has previously been the cause of much frustration at what would be a difficult time.

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Elson Associates does not offer advice as to the suitability of investments. If you are unsure whether an investment is suitable for you, you should obtain expert advice. Past performance of an investment is not necessarily a guide to its performance in the future. The value of investments or income from them may go down as well as up. You may not necessarily get back the amount you invested.

Please remember that tax advantages of ISAs may be subject to future statutory change. Eligibility to invest in an ISA and the value of tax savings will depend on individual circumstances.

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