What is an ISA?

ISA allowances are increasing from £10,200 to £10,680.

Of this £10,680, up to £5,340 can be invested in a Cash ISA, and any unused allowance between the amount you put into a Cash ISA and the overall allowance of £10,680 can be invested in a Stocks and Shares ISA.

For example, invest £2,000 in a Cash ISA from midnight tonight and you can still invest up to £8,680 into a Stocks and Shares ISA.

If you can afford to invest on a monthly basis, to benefit from pound cost averaging, the maximum each month (assuming 12 payments) is £890.

Any questions, add them below and I’ll answer them for you.

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It’s that time of year again – as the end of another tax year approaches on 5th April we are now well and truly into “ISA Season”!

Here’s a brief overview of ISAs for those new to this form of savings/investment, as well as for those who may have a few queries they need answers to.

What is an ISA?

An ISA (Individual Savings Account) is a tax-efficient form of investment. It is tax-efficient in terms of there being no liability to income tax on any income received or capital gains tax on any gains you make.

An ISA will be included in calculating your Estate value for probate and inheritance tax purposes.

What different types of ISA are there?

There are two types of ISA:

1. Cash ISA – this is a savings/deposit account on which interest is paid tax-free.

2. Stocks and Shares ISA – this is an ISA which invests in a fund(s) which themselves invest in stocks and shares.

There are thousands of funds to choose from. Self-select ISA’s allow you to choose your own investment funds. An ISA through an IFA or other adviser can also be invested in if you are not happy to choose your own investment funds.

How much can I invest?

This depends on your age – if you’re going to be 50 or over before 5th April 2010 then you can invest:

1. Up to £10,200 in a Stocks and Shares ISA.
2. Of this £10,200 limit, up to £5,100 can be invested in a Cash ISA (with any unused allowance being available for a Stocks and Shares ISA). E.g. if you put £4,000 into a Cash ISA you can put £6,200 into a Stocks and Shares ISA.

If you’re aged below 50 then you can invest the following:

1. Up to £7,200 in a Stocks and Shares ISA.
2. Of this £7,200 limit, up to £3,600 can be invested in a Cash ISA (with any unused allowance being available for a Stocks and Shares ISA).

After 6th April 2010 everyone can invest up to the £10,200 limit.

Can I Transfer from one ISA provider to another?

Yes – approach the company to whom you wish to transfer to arrange this. Under no circumstances surrender the ISA – you will lose the tax-efficient benefits!

The ISA must be transferred between the providers.

If I transfer an “old” ISA does this use my current years ISA allowance?

No

Can a husband and wife have their own ISA’s?

Yes, everyone aged over 18 has there own personal ISA allowance.

If I take out a Cash ISA and a Stocks and Shares ISA do they have to be with the same provider?

No. You can have a Cash ISA with your bank or building society AND a Stocks and Shares ISA with a separate investment house.

Is there any risk involved?

Cash ISA – generally no – if the bank or building society were to go into “default” then you should be covered by the Financial Services Compensation Scheme (FSCS). In terms of returns, there is no volatility involved as this is purely a deposit/bank account.

Stocks and Shares ISA – these do carry risk – the level of risk will depend on the fund you invest in – some funds are riskier than others. With Stocks and Shares ISA’s you should ideally be investing for the medium to long term (minimum 5 years, preferably 10+). The value of the underlying shares can fall as well as rise, as has been seen over the last few years in the UK and world stock markets.

More information on the compensation schemes can be found at FSCS - please note you cannot claim on the FSCS if your plan falls in value!!!

If you have any comments or questions please let me know in the comments section below.

Remember though – we don’t give financial advice on this site!

What is the current ISA position?

Anyone aged over 18 in the current tax year is allowed to contribute up to £7,200 to a Stocks and Shares ISA. If they choose, they can use up to £3,600 of this allowance to contribute towards a Cash ISA.

Any unused allowance after making contribution to a Cash ISA can be invested in a Stocks and Shares ISA.

For example, if someone currently places £2,000 into a Cash ISA, before the end of the tax year on 5th April they can either invest an additional £1,600 into their Cash ISA, and invest £3,600 into a Stocks and Shares ISA. Or alternatively, they could leave just £2,000 invested in the Cash ISA and invest £5,200 into a Stocks and Shares ISA.

What is changing on 6th October 2009?

The annual allowance for anyone aged 50 or over before the end of the current tax year is having their ISA allowance increased to £10,200. Of this £10,200 allowance up to £5,100 can be invested in a Cash ISA.

What about for those aged under 50?

For under 50′s their ISA allowance will remain at £7,200 for the rest of the current tax year and their allowance will increase on 6th April 2010 to £10,200 in line with the over 50′s allowance.

1. Change in ISA allowances in Budget 2009

The changes announced in the Budget in respect of increases in the ISA allowances come into effect on 6th October for those over age 50 before the end of the current tax year – can invest up to £10,200 into a Stocks and Shares ISA. Woo hoo!!!

2. New Tax Year – New ISA Allowance

More detail on the changing ISA allowances.

3. Download a Free 2010 Yearplanner

I have put together a great little yearplanner for 2010 – it can be downloaded in A4 (landscape) or larger A3 (printed on 2 sheets of A4 for those without an A3 sized printer!). Feel free to send copies to friends, family and colleagues at work.

4. 19 Essential Money Tips for Students

With the start of the University/College/School term upon us here is a great article which might help a few students who are struggling through on their limited finances.

5.  Pay Yourself First

One of the first principles spoken of in the great book “The Richest Man in Babylon” is the need to pay yourself first – the principle here is to take a fixed percentage off your take-home pay and keep that money for yourself forever – then your lifestyle will change itself to allow you to live on the remainder. Get a copy of this book – a truly great read. It could be the most valuable £4.99 you ever invest!

6. Cashflow Forecasting – Planning Income and Expenditure

Here is a really helpful little spreadsheet which will allow you to plan your income and expenditure on a monthly basis – you will be able to see exactly where your money goes to each month – allowing you to make changes in your expenditure – a great tool for “what if” scenarios – what if I stopped eating out, what if I increased income by £200 per month etc.

7. Personal Pension Minimum retirement age increasing to 55 from 6th April 2010

Those people who will be over 50 before 5th April 2010 and were planning to retire in the next 5 years may have to take some urgent action between now and then – in the worst case scenario you may have to continue working for another 5 years!

8. Wear a uniform to work – here’s some free money!

If you have to wash your own work uniform you could be entitled to some money from the taxman – read the article for more information.

9. Get Money for your Old Mobile Phone

Did you know you can sell old mobile phones – I recently sold my old Sony Ericsson K800i and got £28 for it – worth checking out what yours might get you – see the article.

10. 10 Great Reasons for Writing a Will

Everyone needs and should have a Will – it saves so many problems in the event of your death – and let’s face it the only two certainties in life are death and taxes! Read the article now – you might be surprised.

And finally……

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What are the current ISA limits / ISA allowances in the 2009/2010 tax year?

In the current tax year anyone over age 18 can invest up to £7,200 in a Stocks and Shares ISA.

Of this £7,200 ISA limit, up to £3,600 can be invested in a Cash ISA, any of the remaining £7,200 allowance which remains unused can be invested in a Stocks and Shares ISA.

What is changing on 6th October in relation to ISA allowances?

From 6th October, anyone who will be aged 50 or over, before the end of the current tax year on 5th April 2010, can invest up to £10,200 into a Stocks and Shares ISA.

Of this £10,200, up to £5,100 can be invested in a Cash ISA, with any remaining unused ISA allowance being available for investing in a Stocks and Shares ISA. For example – if you invested £2,000 in a Cash ISA you could still invest £8,200 in a Stocks and Shares ISA.

What about if you will be aged under 50 by the end of the tax year on 5th April 2010?

In these circumstances, your ISA allowance will remain at £7,200 until 5th April next year,  with you being able to invest the full £10,200 from 6th April 2010 for the 2010/2011 tax year.

I have already paid some money into my ISA (up to £7,200) – can I top it up after 6th October?

This will depend on the institution you are invested with – we suggest you ask them whether they will allow you to invest the additional amount up to £10,200 (or £5,100 in the case of Cash ISA’s) after 6th October.

Under current rules you cannot contribute to an ISA of the same type with more than one provider. Therefore, if your bank/building society etc is not willing to allow the additional investment you may have the option to transfer to another provider and make the additional investment.

You need to confirm with your current ISA provider whether they will allow the top up – if not, you need to find a provider who will accept a transfer in from the current provider as well as allowing you  to top up.

Warning!

Under no circumstances should you “cash in” an ISA if your current provider won’t allow the top up, as you will not be able to reinvest this amount in the current tax year – to move money from one ISA provider to another you need to complete an “ISA Transfer form” from your new ISA provider.

And finally……

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Also – did you know you can receive our blog posts via RSS.

Related Posts

Changes in ISA Allowances – Budget 2009/2010

New Tax Year – New ISA Allowance – 2009/2010

(The increase comes into effect for those aged under 50 from the start of the next tax year on 6th April 2010!)

In the last Budget, the Chancellor of the Exchequer increased the Stocks and Shares ISA allowance from £7,200 to £10,200 for those aged over 50 (before 5th April 2010) with the increase coming into effect on 6th October 2009.

Many will have already made their maximum contribution of £3,600 for the current tax year with the intention of topping it up to the £5,100 limit on 6th October 2009. There have been rumours that some organisations are not allowing the top-up to the new limit to be added to the existing ISA.

As you can only have one ISA with one provider in the current tax year it will be necessary to transfer the cash ISA to a new provider who will allow the top up.

Very Important – If you wish to transfer to another ISA provider then you must approach them first – they will provide you with a “transfer application” – once completed the new Cash ISA provider will approach your current provider for the transfer amount.

You CANNOT transfer to another ISA provider by “cashing in” your current ISA – if you have already invested money in an ISA, once you take it out you cannot put it back in!

And finally……

Be sure to subscribe to our newsletter – it’s free and you can cancel it at any time.

Also – did you know you can receive our blog posts via RSS.

Related Posts

Changes in ISA Allowances – Budget 2009/2010

New Tax Year – New ISA Allowance – 2009/2010

Although we receive a large number of personal questions we have to remind you that we do not give financial advice on this website – we encourage you to visit an independent financial adviser, solicitor or accountant if you wish to discuss any particular course of action which may be prompted by an article you read on our site.

1. What are the new ISA allowances announced in the recent Budget?

The ISA limit is increasing from £7,200 to £10,200. The change comes into effect for the over 50′s from 6th October 2009 and from 6th April 2010 for the rest of the population. Of the new £10,200 limit, upto £5,100 will be allowed for Cash ISA investment, with any surplus between the amount you place in a Cash ISA up to £10,200 being available to invest in a stocks and shares ISA.

2. Inheritance Tax – who pays?

The liability for paying inheritance tax lies in the hands of the executors/administrators of the deceased’s estate. Inheritance tax is payable within 6 months after the end of the month in which the person passed away. It is possible to pay Inheritance Tax in instalments over up to 10 years – this is the case in circumstances where say the estate includes a house. There is an interest charge if you pursue this method of paying Inheritance Tax – http://www.hmrc.gov.uk/ for more details.

3. I am married to someone who was not born in this country – how does this affect our Inheritance Tax position.

Where a spouse is deemed to be non-Uk domciled then the Interspousal transfer is limited to £55,000, there in no limit to the Interspousal transfer where both partners are UK domiciled – no liability to inheritance tax on first death if you leave all your assets to your marital partner. Consult a solicitor or accountant about your own particular situation.

4. How do I get a State Pension Forecast?

To obtain a forecast of your state pension entitlement, based on your national insurance record you need to fill out and submit a form BR19 – this article – “How Much State Pension will YOU get” gives more details.

5. If I invest a lump sum now how can I easily calculate how it will grow between now and retirement?

Using the Rule of 72 – by assuming an interest rate and dividing this into 72 will tell you how long that money will take to double in value. For example, at 6% your money will double in value every (72/6) 12 years. If you had say 36 years to retirement, at 6% growth your money would effectively double 3 times. See this article for more details.

6. Can I back-date my ISA investment to use last years allowance?

No – your money needs to be invested by midnight between 5th and 6th April each year to use the ISA allowance for that tax year – there is no way to backdate an ISA investment. A case of “use it or lose it”!

7. I am a female born in 1954 – when do I get my State pension?

State retirement age for men and women is being equalised to 65 for both sexes. See this article . There is also a State Pension Age calculator provided by The Pension Service – enter some basic details and it will tell you exactly when you qualify for your State Pension.

8. Can I hold Cash in a Stocks and Shares ISA? What is the tax liability?

Yes – many providers offer a “cash park” facility whereby you can invest temporarily in cash and then switch into stocks/funds over the short term. There is the facility to receive interest on this cash held but the interest is subject to tax and a non-taxpayer cannot reclaim this tax either. See this article for more details.

9. What is the minimum deposit on a mortgage for first-time buyers?

There is no legal minimum deposit, the minimum is set by market forces – we are currently suffering from the “credit crunch” whereby lenders are being cautious about lending to people particularly with the housing market currently falling. Therefore, more and more people are being expected to make a deposit when buying their first homes – typically 10% or more is required to obtain a good interest rate product – see “5 tips for first-time buyers” for more details.

10. What is the “deferred period” on my income protection plan for?

The deferred period is the time between notifying the claim to the life office and the benefit being paid out. The plan is designed to provider a replacement income in the event of long-term absense due to illness or accident. The longer the deferred period, the lower the risk to the insurance company of having to meet a claim which therefore means a lower premium. See these article on “income protection” for more information – “Income Protection – an introduction” and “Critical Illness Cover versus Income Protection”.

These are just some of the areas we have received enquiries on in the past month. Although we cannot reply directly please ask a question and we will try to feature it in the next FAQ article next month. Add a comment below or complete this short form to contact us.

Simon

1. New Tax Year – New ISA Allowance

The start of the new tax year on 6th April 2009 marked the opportunity for another tranche of money to be invested in a tax-efficient manner in an ISA.

2. Change in ISA Allowance – Budget 2009

In his recent Budget, the Chancellor of the Exchequer increased the ISA allowance to £10,200 per tax year – read the above article – the devil is in the detail!

3. Budget 2009 – Key Changes

A summary of the main changes and issues covered in Budget 2009 which may affect you and your wealth.

4. Tax Allowances and Rates – 2009

The start of the new tax year on 6th April heralded a number of changes in rates of taxation and allowances – read the article above to see just how much more money you will pay in tax this year.

5. It’s not how much you save, it’s how long

A great article introducing the time value of money as well as the principle of compoun growth and interest.

6. 10 Great Reasons to Write a Will

What I feel is one of the most powerful and beneficial articles of the last month – if you do nothing else this year, please read this article and make a Will.

7. An Introduction to Inheritance Tax

Inheritance Tax is a tax paid by those who distrust their children more than they distrust the Government. Plan early to avoid the simplest of taxes to avoid.

8. Cashflow Forecasting – plan your cashflow for the next 12 months

Short article on the principle of cashflows – how controlling your cash is an excellent habit to form – handy Excel cashflow spreadsheet available to download as well!

9. “Parking Cash” in an ISA

Great facility allowing you to place full amount into an ISA without the need to commit to investing the full amount from day one if you are concerned about stock markets and other asset classes falling further.

10. State Pension – how much will you get?

An introduction to the State pension with valuable information on changes in state pension age as well as how to obtain your own State pension forecast free of charge!

The above list details the Top 10 articles published on shrewdcookie.com in the last month based on visitor data.

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