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Time is running out if you haven’t already discussed with us how you could take advantage of your tax-efficient 2008/09 Individual Savings Account (ISA) allowance. We have provided answers to some of the most frequently asked questions we receive from clients.
Q: What is an Individual Savings Account (ISA)?
A: ISAs are tax-efficient and flexible wrappers. They don’t have to run for a fixed term to qualify for these concessions and they benefit from tax-efficient growth. You do not have to pay any income tax or capital gains tax when you cash in your ISA. An ISA doesn’t have to be mentioned on your tax return. Q: Who can have an ISA?
A: Anybody over the age of 18 (16 for a cash ISA) is able to save using an ISA as long as they are a UK tax resident. You can also take out an ISA even if you are not currently working. You and your partner are both able to set up an ISA as you receive separate ISA allowances. You cannot take out a joint ISA with somebody; however, you could subscribe to an ISA on behalf of someone else, for example as a gift. |
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Q: How much can I save in an ISA?
A: There is an overall annual maximum investment limit for ISAs, and separate limits apply to each element. ISAs allow you to save up to £7,200 during the 2008/09 tax year. For this current tax year you can save up to £3,600 in a cash ISA with one provider. The balance of the £7,200 limit (£3,600) can be invested in stocks and shares with another ISA provider.
ISA type
ISA limits for the 2008/09 tax year
Stocks and shares ISA Up to £7,200
Cash ISA Up to £3,600
Combined maximum £7,200 Q: Why should I consider using a cash ISA?
A: If you are investing for less than five years, or are a cautious investor, a cash ISA may be the most appropriate option. However, you need to ensure that the interest rate is higher than inflation, otherwise the purchasing power of your savings will reduce. In this current low interest rate environment, if you have cash sitting on deposit in a bank or building society it may be more advantageous to place some of this money into a cash ISA. It is also important to make sure that you leave yourself with an adequate emergency fund. Money on deposit with a bank or building society is normally taxed at your highest rate of income tax, but all interest is tax-free from a cash ISA. |
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