iNVEZZ on ISAs: The Ins and Outs of Tax-Free Saving

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Investors’ portal iNVEZZ, has recently published a beginners’ guide to ISAs, how they work and how to choose one. The author of the editorial, Farquar McIntosh, takes a closer look at this tax-free saving option guiding savers through its advantages while also tackling potential drawbacks.



Replacing the old systems of Tax-Exempt Special Savings Accounts and Personal Equity Plans, the British government introduced the ISA saving scheme in 1999 in an effort to provide UK citizens with a simpler and more rewarding option to save money.

With the United Kingdom’s current demographic trend towards an ageing population, it is more important than ever to save money for the future or for unforeseen circumstances, as there will be fewer young people working and paying taxes, so we can expect to rely less on the government to support us in redundancy, disability, sickness and old age. This is the outline of Farquar McIntosh’s recent analysis, recently released by investors’ portal iNVEZZ, helping explain the ins and outs of Individual Savings Accounts (ISAs) to savers. McIntosh’s analysis seeks to provide greater clarity to savers who find themselves confused by the range of savings and pension ‘wrappers’ currently available to them.

The editorial, structured as a comprehensive guide, provides a general background on ISAs and gives a detailed definition of this saving scheme comparing its basics to those of other types of comparable savings vehicles and investments. McIntosh states that, in its essence, “an ISA is a tax-free saving option, which allows investors to set aside money, shares or stocks with a legitimate tax break on gains, dividends and interest”. McIntosh explains the contrast with traditional investments in stocks or shares outwith an ISA, where there is capital gains tax on profit. “Replacing the old systems of Tax-Exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs), the British government introduced the ISA saving scheme in 1999 in an effort to provide UK citizens with a simpler and more rewarding option to save money”.
Explaining the ins and outs of the ISA picture further, McIntosh summarises the different types of individual saving accounts and describes their unique characteristics. The author outlines differences in the two types of ISAs -- Cash and Stock & Shares -- whose advantages, disadvantages and suitability are compared. “As the name suggests, a Cash ISA involves investment of money from your income”, McIntosh writes. “Depending on their interest rate terms and conditions as well as when and how much money you can withdraw, there are different variations available for a Cash ISA”.

McIntosh helps savers understand these subcategories and examines additional details on withdrawing money from an ISA. Unlike a Cash ISA, the author explains, Stocks and Shares ISAs, as the name suggests, involve investments in stocks and shares and are usually held in “collective investment vehicles” where a fund manager picks a selection of shares to invest in or you have the option of making the selection yourself if you feel confident in your own knowledge and prefer greater freedom and flexibility.

When it comes to the set of choices and flexibility available in the choice of ISA, there is another crucial point outlined in McIntosh’s guide -- ISA Limits and the ISA Allowance 2012. “The amount of money you can invest in an ISA is not unlimited, and a maximum level is set every April”. These annual boundaries, the iNVEZZ analyses explains, are also known as “ISA limits for the year”, or “ISA allowances”. The ISA allowance 2012 is £11,280, where up to a maximum of half of this can be saved in cash. McIntosh underlines that ISA limits relate only to the current annual period. For example, “the ISA allowance 2012 is only relevant to 2012 and the following year a saver can again put up to the allowance for the year into an ISA wrapper”.

iNVEZZ’s analysis of individual saving accounts also provides advice on how to choose an ISA, including the main points for consideration in regards to the type of ISA and amount of money to invest. McIntosh concludes that whichever type of individual saving account you choose, you can always make a transfer if you can get a better deal elsewhere.

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John Adam
iNVEZZ Limited
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