Use our quick guide to help you understand which ISA is right for your investment needs.
What is an ISA?
An ISA is a tax efficient way of saving or investing as all income and capital gains arising within an ISA are exempt from any personal liability to UK income tax and capital gains tax.
There are two types of ISA:
- Stocks and shares
- Cash
A payment by you into an ISA in any tax year is called a subscription. You can only subscribe to one of each type of ISA per tax year.
See our range of Cash and Stocks and Shares ISAs.
Because of their tax advantages ISAs are subject to annual subscription limits. The overall ISA subscription limit is currently £10,200 per tax year. Up to £5,100 of this overall limit can be saved in a cash ISA with one provider. The remainder of the £10,200 can be invested in a stocks and shares ISA with either the same or another provider. Alternatively, the full £10,200 can be invested in a stocks and shares ISA with one provider.
As with any investment related to stocks and shares, the price of shares and any income from them can go down as well as up.
It is possible that the value may fall below the original investment.
This may also happen as a result of changes in the rate of exchange where overseas securities are held.
Remember, stock market investments should be viewed as a medium-term to long-term investment (at least five years).
Tax
Income from UK shares is paid with a dividend tax credit.
The tax credit cannot be reclaimed regardless of whether the shares are held directly or within a collective investment scheme.
This applies whether the investment is within or outside of an ISA.
Outside an ISA, lower and basic rate taxpayers have no further liability to income tax, but higher rate taxpayers will have additional income tax to pay.
However, if held within an ISA, all investors, including higher rate taxpayers, have no further liability to income tax.
Although there is no income tax liability on dividends received in ISAs, the companies/funds in which the ISA invests will pay any dividend out of post-corporation tax profits.
ISAs that hold interest (rather than dividend) bearing investments (eg, corporate bond funds) are still eligible to receive interest distributions free of income tax (either by receiving such payments gross or by the ISA manager reclaiming any income tax deducted at source as applicable).
The value of the tax treatment described will depend on individual circumstances.
Tax rules could change.
