Stocks and Shares ISA
The Stocks and Shares ISA has been around for over ten years now, having been introduced in April 1999, and has changed quite a lot in that time. The ISA was introduced to replace the Tax-Exempt Special Savings Accounts (TESSAs) and the Personal Equity Plans (PEPs) which had been around before that.
The problem with PEPs and TESSAs was that only the more wealthy tended to understand how they worked and this weren’t easy to access for the entire population.
The ISA was born, and was immediately accessible to the entire population, working extremely simply and allowing everyone to save money, tax free.
ISAs must in nearly all circumstances be funded with hard cash, and only a few employee share ownership schemes allow saving without investing cash first.
The Stocks and Shares ISA is available to all UK residents over 18 years of age, which differs from the Cash ISA whose age limit is 16.
Stocks and Shares ISAs differ from a standard Cash ISA in that you invest your money into investment trusts, unit trusts, government and corporation bonds or a selection of other investments.
This year’s limit for Stocks and Shares ISAs is £10,680 although this includes your Cash ISA allowance as well.
Stocks and Shares ISAs have no guaranteed returns and savers can lose as well as gain money. This form of ISA is traditionally seen as higher risk, but with that risk comes the potential that it may pay much better returns than a cash alternative.
The tax portion of Stocks and Shares ISAs is different to Cash ISAs and can by quite complicated. Investments in interest-bearing vehicles, like corporate bonds pay interest tax free, whereas investments in share based vehicles are still taxed at the standard rate. Only higher rate tax payers save here as they don’t have to pay their 40 or 50% tax rate on these returns.
Many of these ISAs are accompanied by a variety of charges, effectively a management charge for investing your money. It’s important to work out whether the extra returns on your investments outweigh the cost of this charge before taking out a Stocks and Shares ISA.
You can now transfer Cash ISA money into a Stocks and Shares ISA, but it can’t be transferred the other way.