| Introduction | Life insurance | Pensions | Savings | Investment | Ten tax-saving steps |
Individual Savings Accounts (ISAs)
Every UK resident adult should consider taking out a tax-effiecient Individual Savings Account (ISA).
ISAs allow you to save up to £7,200 in the 2008/2009 tax year without you having to pay tax on either the income the investment generates or its capital growth. For this tax year you can invest up to £3,600, which can be saved in a Cash ISA with one provider. The balance of the £7,200 limit can be invested in stocks and shares with another ISA provider.
ISAs come in two different forms. You can choose ISAs that invest your money in a bank or building society account known as a Cash ISA or a collection of stocks and shares known as a Stocks and Shares ISA. Some ISAs meet stakeholder standards indicating that they meet minimum terms on charges, access and terms. It is important to understand that a stakeholder ISA is neither approved, nor its performance guaranteed, by the government.
Each type of ISA brings its own risks, and each will be suitable for a different type of investor. An IFA can help you sort out which type of ISA is right for you, and help you to avoid the many pitfalls which the choice if ISAs present.
Table 2: Your Choice of ISAs
| Table 2: Your Choice of ISAs | ||
| Type of plan | Examples where your cash goes | Current maximum* investment allowed in the 2008/2009 tax year |
| Cash ISA | Bank or building society deposit account | Up to £3,600 |
| Stocks and shares ISA | Equities, bonds, unit trusts, OEICs, investment trusts, life assurance | Up to £7,200 (deducting any cash ISA already made for the tax year) |
| *In future years maximum levels may reduce or increase. | ||
What about the ISAs, PEPs and TESSAs I have previously invested in?
If you have invested previously in mini cash ISAs, TESSA-only ISAs (TOISAs) or the cash component of a maxi ISA, these will automatically from the start of the new tax year on 6th April 2008 become cash ISAs. You may have invested in mini stocks and shares ISAs and the stocks and shares component of a maxi ISA which will automatically become stocks and shares ISAs. All Personal Equity Plans (PEPs) will automatically become stocks and shares ISAs.
Bonds
When you buy a bond, you are lending money either to the UK Government or to a company in return for a fixed rate of interest.
Government bonds – known as ‘gilts’ – are a particularly safe form of investment, because you know you will get your capital back at the end of the gilts term, plus regular income payments at a predictable rate. Your money is at risk only if the UK government defaults on its loans, which is very unlikely.
The Bonds issued by individual companies work in the same way. If you select a big company with sound finances, the risk involved should be only a little higher than when buying a Government bond. Both corporate bonds and gilts can be wrapped inside an ISA to save tax. Investments like these are available as part of your equity ISA allocation for the year.
