Why use an ISA?
An ISA protects your chosen investments from income tax and capital gains tax.
Who can have an ISA?
All UK residents aged 18 and over can invest in an ISA. 16-17 year olds can invest in a "cash" ISA, up to the £3,000 limit. You cannot have a joint ISA account but couples can take out an ISA each, giving couples a maximum allowance of £14,000 each year.
The Maxi ISA
There are two basics types of ISA: the Maxi ISA and the Mini ISA.
A Maxi ISA allows you to invest the maximum allowance of £7,000 in an ISA offered by a product provider. You can therefore invest all the money in stocks and shares (£7,000) or split it into segments of £3,000 stocks and shares, £3,000 cash, and £1,000 insurance. If you do not wish to invest £1,000 in the insurance element you can only utilise £6,000 of your allowance.
Therefore, if you wish to invest the maximum amount of £7,000 you will need to invest all of it in a stocks and shares Maxi ISA as many ISA providers do not offer an insurance option within their Maxi ISA.
It should be noted that you cannot take out a Maxi and Mini ISA in the same year.
The Mini ISA
There are three types of Mini ISA.
- Mini Stocks and Shares ISA (limit £3,000)
- Mini Cash ISA (limit £3,000)
- Insurance ISA (limit £1,000)
The most pertinent point to make here is that you can still invest the maximum amount of £7,000 by investing in each of the above. The difference between the Maxi and the Mini ISA is that you can open each Mini ISA with a different product provider, whereas within a Maxi ISA you can only invest with one provider.
It is important to note, however, that you can only take out one type of Mini ISA per year. For example, you cannot take out two £3,000 Mini stocks and shares ISAs. If you want to invest in more than £3,000 in stocks and shares you must take out a Maxi ISA. Remember, however, that you cannot take out a Maxi and Mini ISA in the same year.
ISA Pitfalls
If you wish to utilise the whole £7,000 of your allowance you must be careful when making your choices. If you open a Mini Cash ISA, even investing just £1, you are locking yourself into the Mini ISA limits which immediately reduces the amount you can invest in stocks and shares from £7,000 to £3,000. In other words, £4,000 of your stocks and shares allowance is lost.
CAT Standard ISAs
CAT stands for Charges, Access and Terms (CAT). This is a voluntary guideline, set up by the Government. Any products bearing the CAT logo are deemed to meet the costs, access and terms laid down in the CAT guidelines.
However, the presence or absence of a CAT mark cannot predict whether an ISA will prove to be a good or bad investment for you. You must be aware that CAT funds are not approved, either by the Government or the regulators, nor is your money or investment return guaranteed in any way.
A CAT marked product may do better or worse than a non-CAT marked product. Many ISAs are not CAT market, as this is a voluntary measure.
If you are unsure about whether you should purchase a CAT marked product or not, do contact us for advice.
Why is that not all ISAs are CAT marked?
As CAT ISAs need to be low cost to qualify many providers will be unable to meet, or want to meet, the low cost aspect set down within the CAT guidelines.
Many providers feel that the research, trading, managing, marketing, hands-on strategic development and research that goes on within an "actively"managed fund cannot be adequately done within the CAT low cost limit..
Therefore, low cost ISAs are likely to have a "blue chip" UK or Tracker fund bias within the product.
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