Seniors Network  

Individual Savings Accounts  ISAs

clear gif

This is intended as a basic guide to:

Individual Savings Accounts  ISAs

It is not intended as advice in any way.  When you do need advice on which type of ISAs or mix of ISAs to choose - please consult an Independent Financial Advisor.

ISAs are a form of tax-free shelter or ‘wrapper’ in which you can place your investments to give them tax-free status. There is a limit on the amount you can invest each year. The ISA ‘wrapper’ will contain one or more of the following ISA components: 

Investment Component  
- known as ‘stocks and shares’ this will contain collective investments such as unit trusts and/or individual shares.
Cash Component  - will contain bank or building society deposits, National Savings or cash unit trusts. 
Insurance Component  - will be certain types of life insurance. 

See Main Points

Investment in the Stocks & Shares element of an ISA can be done via a number of routes but the most popular is through an approved Unit Trust or Open Ended Investment Companies (OEIC's). These are collective investments which enable individuals to pool their money into a fund which is then invested in a wide spread of shares or fixed interest securities. The range of companies and securities invested in will be more varied than the small investor could achieve on their own. The fund is then professionally managed to achieve maximum returns consistent with the stated investment objectives.

Unit Trusts and OEICs offer investors the potential to achieve capital gains which exceed what is usually possible in the Building Society, however they do involve taking a degree of added risk. Some of this risk may however have been minimised because when you put your money into a Unit Trust, you are effectively buying a small quantity of shares in several companies. Which ones precisely are decided by the fund manager. 

Most Unit Trust providers pay initial commission to introducers; this is typically 3% of the money invested. 

There are literally hundreds of ISA approved Unit Trusts investing in a wide range of different industries and economies. Choosing the one that suits your investment profile isn't easy and may depend on your existing market exposure. You may be prepared to sacrifice short or even medium term volatility in return for higher potential gains or, you may be looking for the absolute lowest risk investment possible. You may be happy to invest in emerging markets or technology stocks or you may be more comfortable investing in UK Blue Chip Companies.

Cash ISAs  
Investors should appreciate that even if only £1 is invested in a CASH ISA the maximum allowable for investment into the Stocks and Shares element will be reduced to £3,000.
will contain bank or building society deposits, National Savings or cash unit trusts. 

Life Assurance ISAs

The ISA rules permit an investment of up to £1,000 into a life policy to be sheltered from tax as a Life Assurance ISA. This can be either as part of a Maxi ISA or as a stand alone Mini ISA. Unfortunately, this low maximum investment amount has meant that the vast majority of providers and advisers have chosen to ignore this element.

Investors should of course appreciate that even if only £1 is invested in a Life Assurance ISA the maximum allowable for investment into the Stocks and Shares element will be reduced to £3,000. It is therefore felt that Life Assurance ISAs should only be taken out by individuals who also choose a Cash ISA.

As mentioned above, there are very few providers of Life Assurance ISAs. One company that do provide an opportunity to invest via this route is Family Assurance Friendly Society who offer their Family ISA bond. As a life insurance plan it carries death benefits of at least 101% per cent of the premiums paid (the invested amount) even if the fund value has fallen. The premiums are invested in Family's Capital Builder Fund, which in turn invests in the Family Asset Trust with the aim of achieving long term growth of capital

A TESSA Only ISA is a special low risk ISA which offers a continued tax shelter for the capital element of a maturing TESSA. It is available in addition to normal ISA allowances. You will not be able to invest accrued interest or bonus into the TESSA Only ISA however, you can of course invest it into a normal ISA. You have a maximum of six months in which to roll over your TESSA capital into a TESSA Only ISA.

There are two types of TESSA Only ISAs available, both of which offer 100% security of capital but very different potential returns. The two types are:

Cash based TESSA Only ISAs
Stockmarket linked TESSA Only ISAs

Cash Based TESSA Only ISAs

A cash or deposit based TESSA Only ISA is simply a traditional bank or building society account where the interest is not taxed. Just like ordinary bank and building society accounts, rates and terms and conditions will vary significantly

See Main Points




Copyright Seniors Network 2000-2015  Site designed by MOL -selected for preservation by the British Library and archived regularly