HOW TO MAKE THE BEST OUT OF THE ISA REFORMS IN THE UK

 

Money saving incentives in the United Kingdom are getting better with new government initiatives. With a little background understanding of recent tax measures, your pounds can stretch even further. That's right – forget the rest of ISAs and get the best ISA.

While most forms of savings are subject to a 20% tax, Individual Savings Accounts (ISAs) are a tax-free scheme to encourage people to save money and consider their investments.

Introduced in 1999 to replace the earlier Tax-Exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs), ISAs are free of income tax and capital gains tax for annual investments of up to £7,000 in two components: cash and shares. At present, savers can either combine both in a Maxi ISA with the same financial institution, or invest with different providers with Mini ISAs. Both a Mini and Maxi cannot be purchased in the same tax year.

In light of the seven years passed since the introduction of the scheme, the government has recently concluded an anticipated ISA regime review. There are a few key changes to the future of ISAs from the tax year 2008/09. Firstly, the government aims to bring any remaining PEPs in line with the ISA system. By aligning the rules of the two schemes, any of the remaining 3.5 million PEPs can be invested in the full range of ISA options.

The government also wishes to simplify matters by abolishing the difference between Mini and Maxi ISAs. With savers able to contribute cash and shares under their choice of provider, the investment rules are easier to understand and prevents breaking ISA rules unawares. The saver has the choice to operate their cash and shares through the same or different providers, with the overall investment limit remaining at £7,000.

The final regime reform measure is to allow cash transfers to the ISA stocks & shares component. The proposed measures will essentially allow a diversification of investment accounts and savings options.

For more information, and the best ISA, it is essential to consult a trusted financial adviser.

 


 




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8-3-09