ISA Allowance 2009/2010
Yesterday, 6th April 2009, marked the beginning of a new tax year – all last year’s planning is now closed and we each start the new tax year with a clean slate and the opportunity to make positive changes in our personal finances.
With the dawning of a new tax year comes the ability to contribute to another ISA allowance.
Our article “ISA’s – Individual Savings Accounts” gives more information on what an ISA is – the different types available, the tax treatment etc.
New ISA Allowance – 2009/2010
In the current 2009/2010 tax year the investment allowance into an ISA remains the same at a total investment allowance of £7,200.
This can be broken down into two constituent parts – up to £3,600 can be invested in a Cash ISA (a little like a savings account with a bank or building society, only with interest paid with no income tax deducted) – with the remaining amount up to a total subscription of £7,200 across both ISA types being available.
For example, if you invested £2,000 into a Cash ISA you could still invest £5,200 into a Stocks and Shares ISA.
22nd April 2009 – In the budget today, Chancellor of the Exchequer announced changes to ISA allowances which come into effect on 6th October 2009 for over 50’s and for the rest of the population from 6th April 2010 – click here for more details.
I didn’t utilise my full allowance last year, can I top it up?
No, once the clock strikes midnight on 6th April a new tax year starts and all subscriptions to last year’s ISA are complete – no more money can be paid in. In practice, if your Cash ISA is administered in the traditional way through a passbook with a bank or building society, you will more than likely continue to pay money into the same book – it is just your allowance for the current tax year which limits the amount you can pay into the account.
Can I have my Cash ISA and Stocks and Shares ISA with different companies?
Yes – you are free to hold your Cash ISA with a different institution to your Stocks and Shares ISA.
Are they expensive?
Typically when investing in an ISA you will incur an “initial charge” – usually in the region of 4%-6% depending on the fund you are investing in, together with an “annual management charge” of between 0.75% and 2.25%.
Many people invest through a discount “supermarket” where the investor may benefit from a discount on their initial and annual management charges.
Can I invest in more than one Cash ISA in the current tax year?
No – once you commence saving into one Cash ISA all contributions in that tax year must be into that Cash ISA with that institution.
Can I Transfer Previous Cash ISA’s and Stocks and Shares ISA’s to another bank or investment house?
Yes, you are free to transfer previous years ISA’s to another provider.
A word of warning here though – you need to TRANSFER your ISA – ask the new company for a TRANSFER form – they are the ones who must contact your previous provider and arrange the transfer. Under no circumstances simply close the existing ISA and take the proceeds to a new institution – it won’t be accepted as a transfer!
Stocks and Shares ISA’s – aren’t they risky?
Yes they can be – a normal course of action would be to invest in a unit trust shielded through an ISA wrapper. A unit trust will normally invest in a range of stocks and shares depending on what that fund is trying to achieve. In these types of fund your money is not guaranteed, you could lose money, you could get back less than you originally invested.
These types of ISA should be viewed as a medium to long term investment – minimum of 5 years although it would be wise to work on a minimum 10 year investment horizon.
Before investing in any asset-backed investment such as a Stocks and Shares ISA it is prudent to ensure you have saved sufficient “rainy day” money into a savings account – this is money you can access easily and they should ideally be invested in a savings/deposit account were the value of your account isn’t susceptible to falls in the value of underlying investments.
How much Rainy Day Money?
Everyone is different – some people may be comfortable with say 6-12 months net income plus all likely expenditure over and above your normal expenditure which you feel may be incurred over say the next 2 years. Others would wish to save considerably more.
The yardstick for any decision to invest in a Stocks and Shares ISA must therefore be – how long are you prepared to invest this money for and are you prepared to lose some or all of it if your investments don’t perform well.
For example, if you need a new car next year it would not be wise to invest these monies in a Stocks and Shares ISA because of the risk of your money falling in value over the short-term.
If you are concerned about risking your money then please seek advice from an Independent Financial Adviser.