An Individual Savings Account (ISA) is not itself an investment but a vehicle which shelters your money from taxation. Introduced in 1999, ISAs have now become the main savings vehicle for adults outside pensions, with a total of over £220 billion invested by more than 17 million people - around one in three adults (http://www.hm-treasury.gov.uk/). Levels and bases of, and relief from, taxation are subject to change and their value depends on the circumstances of the investor.
There are two types of ISA: Stocks and Shares and Cash. Which one you should choose depends on your own needs. The CFM ISA Discount Service provides access to a Stocks and Shares ISA only. If you are looking for long term returns (over at least five years) and are happy to take some risk with your capital, then consider a Stocks and Shares ISA.
Before you make an investment, you need to consider:
- how much investment risk you want to take by deciding whether you are a cautious, moderate or aggressive investor; if you do not want to take any investment risk, the CFM ISA Discount Service is not for you;
- the fund(s) in which you want to invest;
- how much you want to invest.
If you would like advice on which is best for you Contact Us for individual advice.
You may subscribe either to a Stocks and Shares ISA or Cash ISA, or both, subject to limits (see How much can I invest in an ISA below).
In the tax year 2011/2012 you can invest up to £5,340 in a Cash ISA and £10,680 in a Stocks and Shares ISA. If you want to invest in both a Stocks and Shares ISA and a Cash ISA in the same year, the separate limit to each type of ISA still applies, but you cannot invest more that £10,680 in total.
An advantage of regular monthly contributions into a Stocks and Shares ISA means that you can benefit from pound cost averaging. A steady monthly investment will secure units at a cheaper price if the market falls and when the market rises, there is greater profit to be had from those cheaper units. This process lessens the risk and can mean that in volatile market conditions, returns are better than if a single lump sum is invested at an unsuitable time. For those who are trying to accrue capital, making regular contributions into an ISA can be a flexible, low cost and a tax efficient way of investing.
Current tax rules allow only one provider for a Stocks and Shares ISA (unless you access the ISA through a fund platform) and one provider for a Cash ISA in each tax year. However, if you invest in both types these can be held with the same or different providers. In The CFM Direct Offer you are allowed to include a range of different Jupiter Merlin Funds in your ISA. You will need to complete only one application form and refer to one set of key features and terms and conditions.
You can take out your money at any time (but some types have a notice period), without loss of the tax advantages. However, you will not be able to top it back up again later if you are drawing from a full account in the first place. A stocks and shares ISA should be viewed as a medium to long term commitment (five years +) and any income from it may fall as well as rise and investors may get back less than they originally invested. Past performance is no guarantee of future performance.
These are benchmarks set by the Government to help investors choose an ISA. They cover charges, access and terms. Stakeholder conditions do not guarantee the performance, but they provide a useful benchmark against which to compare other products. However, the ISAs included in The CFM ISA Discount Service do not meet the standards intentionally so they can, for example, be invested fully in the stock market.
You can transfer from a Cash ISA to a Stocks and Shares ISA without affecting your current year's allowance. Transfers from a Stocks and Shares ISA into a Cash ISA cannot be made.
Anyone resident in the UK who has not already used up his/her allowance for the tax year and is over 18 years.
An ISA must be in the name of the person opening it. However, third parties can invest, but the investment must be treated as a gift to the person opening the ISA. Money Laundering Rules will apply.
Despite the ending of the 10% credit reclaim, Stocks and Shares ISAs are still valuable investments for the following reasons:
- they are free from personal tax assessment which avoids bureaucracy;
- all growth on the investment is free from capital gains tax;
- stocks and shares investments have the potential to produce a rising income and capital growth over the long term;
- you do not have to account to the Inland Revenue for any income received or on any disposals.
The Junior ISA will be launched on 1 November 2011 and will have the following key features:
- all UK residents under the age of 18 apart from those with a Child Trust fund (CTF) which applies to all children born between 1 September 2002 and 2 January 2011
- as with the adult ISA , any capital gains and income will be granted tax freedom
- both cash and stocks and shares Junior ISAs will be available
- children will be able to hold up to one cash and one stocks and shares Junior ISA at a time
- there will be an overarching contribution limit of £3600 per year, but the Government will not make any contribution into the Account on the child's behalf
- from April 2013, the limit will be raised in line with the consumer price index
- until the child reaches 16, Accounts will be managed on their behalf by a person with parental responsibility for that child
- at age 16, the child can assume responsibility for their own Account if they want to, and when they reach the age of 18, the ISA will by default become an adult ISA
- it will be possible to transfer Accounts between providers.
It will not be possible to transfer Child Trust Funds (CTF) into Junior ISAs or vice versa, although the Government did say that once Junior ISAs have been launched, it will consider whether CTFs and Junior ISAs should be 'more closely aligned'.
Read ISA Application Checklist