Individual Savings Accounts (ISAs) are a tax efficient vehicle for savings and investments that allow individuals to enjoy any savings interest or investment growth and income tax-free. ISAs were introduced in 1999 as a replacement for Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs). In July 2014 the implementation of significant changes (see below) led the Government to rename these accounts New ISAs (NISAs).
Money is invested in a NISA/ISA out of your post-tax income. Any growth in the investments held in a NISA/ISA is exempt from capital gains tax and interest on cash held within it (up to the cash element limit) is not subject to income tax. No tax is payable on withdrawals.
In his 2014 Budget the Chancellor announced a major change to ISA limits and the way they interact - resulting in the creation of the New ISA, or NISA.
From 1 July 2014 the total that can be saved in these accounts each year has been increased from £11,880 to £15,000. Furthermore, the previous £5,940 limit on cash ISA contributions has been removed entirely - meaning that savers can apportion their savings between cash and stocks and shares in whatever proportions are most appropriate to their circumstances. For the first time it has also become possible to transfer previous years' stocks and shares ISAs into cash NISAs, which may be appropriate as the saver's circumstances change.
The stocks and shares element of a NISA/ISA can be invested in companies with a full listing on a stock exchange, government bonds and corporate bonds, as well as a range of collective investment funds. All of Clarion Investment Management Limited’s funds and investment platforms can be held within a NISA wrapper.
It is now also permissible for NISAs/ISAs to invest in the shares of companies that are listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The products that have come onto the market so far have tended to target the potential Inheritance Tax (IHT) advantages of investment in AIM shares, which are generally considered higher risk than their main market listed counterparts.
Although for many high net worth individuals the annual NISA/ISA limits appear low, over the long term it is possible – especially if you are in a couple – to move significant sums from other, less-tax-efficient vehicles into a NISA/ISA wrapper by making sure you always take full advantage of your annual allowance.
It is possible to transfer savings and investments held in a previous year’s NISA/ISA into another provider’s product without losing the tax advantages. In order to maintain its tax privileges, however, this must be carried out as a formal transfer and not a withdrawal.
Structuring withdrawals from investment products (NISAs/ISAs and non-ISAs) properly can lead to substantial tax savings and we would recommend that you seek qualified independent financial advice before taking any action.
To find out how Clarion Wealth Planing can help you maximise the benefit of your NISA allowance please call 01565 653804 or send us an email.