ISAs

It is a wrapper surrounding your fund choice(s) that makes them more tax efficient.

When you make an investment in an ISA you pay no income or capital gains tax on the returns you receive, no matter how much your investment grows or how much you take out over the years. You don't even have to mention your ISA on your tax return. Please be aware that the value of tax savings and eligibility to invest in an ISA will depend on individual circumstances, and all tax rules may change in the future.

ISAs are very flexible, and can be suitable for any long-term savings need. They have no fixed investment term, though we believe that you should only consider investment in equities over a period of five years or more. Each year you have the option to select how you would like to invest your ISA allowance, either in cash or stocks and shares, or a combination of both. There are rules concerning how much and where you can invest - you can currently invest a maximum of £10,200 per tax year in a tax-efficient ISA and a maximum of £5,100 in a cash ISA.

Following the Budget announcement on 22nd April, the annual limit for ISAs for anyone turning 50 by 5 April 2010 increased to £10,200 from 6 October 2009. This limit will be available to all investors from 6 April 2010.

An Individual Savings Account (ISA) is a great way to make the most of your tax-efficient savings limit and save for the future. The value of tax savings and eligibility to invest in an ISA will depend on individual circumstances and all tax rules may change in the future.

No Income Tax to pay
This is particularly valuable if you're a higher-rate taxpayer. For example, if as a higher-rate taxpayer you receive £100 in dividends on an investment that's not held in an ISA, you have to pay an extra £25 in income tax. However if your investment is held in an ISA you won't have to pay any extra tax at all.

This may be worth thinking about even if you're not currently paying higher-rate tax at the moment as you may move into the upper tax bracket in the future. And of course there's no guarantee that the government won't change the tax bands in the future pushing more people into the higher-rate tax bracket.

No Capital Gains Tax to pay
You don't have to pay any Capital Gains Tax (CGT) on your ISAs. It's reassuring to know that no matter how much you invest in the future or how successful your investments are, you won't have to pay this tax. A lot more investors would pay CGT if ISAs didn't exist.

Receive a tax-efficient income
If you hold bond funds in your ISA the income generated would be free of income tax. This could be a real benefit if you need to take an income from your savings & investments, perhaps as you near retirement.

Even if you don't want to invest in bonds at the moment, you may want to move money from equity funds into bonds in the future - perhaps when you need to take an income from your investments or if you want to reduce the level of risk in your portfolio as you near retirement.