Investment ISAs - Stocks and Shares ISAs
In order to promote savings and investment there are a number of tax exempt ways of saving your money in the form of investing. Individual Savings Accounts are probably the best example of this form of saving, they can be cash ISAs or what are known as stocks and shares ISAs.
ISA essentially allow you to put a "tax wrapper" around your investment which means that it will be protected from most of the various forms of tax that it would normally be subject to.
If you are above the age of 16, then you will be allowed to have a certain amount of money in an ISA that will be tax protected. If you are over the age of 18, you will be able to deposit money into what is known as a stocks and shares ISA.
Stocks and shares ISAs can range from things such as individual bonds or shares, to general collective investments including property, stocks and shares or a combination of all of them.
What's the maximum investment?
You have a yearly allowance of £15,240 that you can place into a stocks and shares ISA - correct as of 2015/16. It should be noted that you can only invest your money with one supplier in each tax year. What you can do if you want to divide your investments is use part of your allowance on a cash ISA and part of it on a stocks and shares ISA.
If you were to make profit on any of your investments, this would not count towards your ISA allowance - your allowance is only taken up by money that you place into the tax wrapper yourself. This means that if you were to invest half of your allowance into a stocks and shares ISA and it started giving you a return, you would still be free to invest the other half into a cash ISA if you wished. The same principal applies if you were to sell any of your stocks and shares for profit, you can reinvest in your ISA without that being counted towards your allowance.
You are also permitted to transfer money between different stocks and shares ISA providers without it affecting your annual allowance. The only time that you r allowance will be affected is when you withdraw money from the ISA. You are also not permitted to move money from a stocks and shares ISA into your cash ISA but you are allowed to do it the other way round.
The Tax Efficiency of Stocks and Shares ISAs
Capital Gains Tax and Income Tax do not apply to any money that you may make on stocks and shares ISAs, provided that you keep this money in the ISA in question. However the benefits of these tax breaks will only be relevant to you if you are a higher tax rate payer. This is because dividends that are paid out to basic tax rate payers are treated the same whether or not they are part of an ISA - due to the 10% tax credit. This means that only those who normally pay the higher rate of tax or Capital Gains Tax will save money on tax through a stocks and shares ISA.
Should I choose stocks and shares ISAs to invest my money in?
There is a chance that you could make quite a lot of money from a stocks and shares ISA, as long as you are willing to stick with it for a decent amount of time. However you should remember that it won't provide you with the same level of security as a standard cash ISA. Like with any investment in stocks and shares you should consider the risk of the investment and be aware of the fact that the market will determine the size of you profit.
If the reason that you are considering an ISA is that you want to save away some money for the short term, you may want to consider a different saving option. You should look at any investment in the stocks and shares market as mid to long term ventures due to the need to see the saving through upturns and downturns in the market.
Lowering your risk in the market
There is quite a large variety of stocks and shares ISAs that are available for you to choose from. As a result of this you should be able to find a stocks and shares ISA that matches the level of risk that you are willing to take. Another approach that may help you reduce your risk would be to diversify your investments.