5 questions about ISAs

Happy new 2014/15 tax year! Welcome to a new opportunity to keep your pounds away from the needy taxman by opening an ISA.

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1. What actually is an ISA?

ISA stands for individual savings account.  It is a means of saving or investing that offers tax advantages.  Interest in cash ISAs are paid tax free and investments can grow without capital gains tax or additional rate tax on dividends*.

“From 1 July, these two ISAs will merge into one, allowing your £15,000 allowance to be stored into cash, shares or any mixture of the two”

2. Can I have an ISA?

Anyone who is a UK resident and over the age of 16 can have a cash ISA.  Children can opt for a Junior ISA (which replaced child trust funds) and anyone over the age of 18 can have an investment ISA.

3. Can I have a cash and investment ISA at the same time?

Yes, provided you stick to the limits of contribution you are able to open both types of ISA in the same year.  The total limit this tax year (2014/15) is £5,940. But from 1 July 2014 this allowance will go up to £15,000 and become a lot more flexible. But don’t feel like you have to wait. You can use this year’s allowance of £5,940 and then top it up to £15,000 in July.

4. Can I take out my money at any time?

Yes, as long as you’ve opened an easy-access ISA, you can withdraw the money whenever you want, just like a normal savings account. But you can’t put the money back in.

5. What’s the difference between a cash ISA and an investment ISA?

A cash ISA is designed to hold cash – just like any other savings account but with tax advantages.

An investment ISA, or stocks and shares ISA has a wider range of options that it can hold. Most commonly these are unit trusts or open ended investment companies (OEICS) but they could also be individual shares or investment trusts. From 1 July, these two ISAs will merge into one, allowing your £15,000 allowance to be stored into cash, shares or any mixture of the two.

Interested? Find a financial adviser to guide you through the process.

*The 10 per cent dividend tax cannot be reclaimed

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