ISA stands for Individual Savings Accounts which were introduced on the 6th April 1999. At that time the Government promised that ISAs would available for at least 10 years however as from April 2008 the Government is making ISAs available indefinitely.

ISAs are designed to encourage savings and a Cash ISA is one of the two Components of an Individual Savings Account. You may save up to £3,600 for the 2008/2009 tax year.

Whilst your money is held in a Cash ISA none of the interest added to your account is subject to tax. This means you can keep any money you earn from your investment without having to pay tax on any gains made.

This is different to investments, such as ordinary bank or building society accounts. Under these accounts tax is normally deducted from any interest before it is added to your account.

(Please note: there are special rules for people that do not pay Income Tax and choose to save or invest in Bank / Building Society accounts. We will be able to explain these rules – please contact us).

There are certain rules regarding the eligibility for an ISA plan and these carry across to Cash ISAs.

In order to make a contribution to an ISA plan you must be a UK tax resident (or perhaps a Crown Employee that is serving overseas).

In addition to this there are age limits:

You must be aged 16 or over before you are allowed to open a Cash ISA account. Once the account is open you are limited to making deposits of no more than £3,600 in the 2008/2009 tax year.

If you have any queries about your eligibility for an ISA you should contact us.   

ISAs are an excellent way for taxpayers to save. Not only is any interest added to your account without any deduction for tax but also you can have access to your money whenever you like. You do not even have to tell your Tax Office that you have any type of ISA.

Under current rules you can invest, during the tax year, up to a total of £3,600 into a Cash ISA. The tax year runs from 6th April to the following 5th April.

The Chancellor has announced that he will simplify the structure of ISAs, so that the terms Mini ISA and Maxi ISA will disappear from the 6th April 2008 and thereafter you will be able to subscribe to either a Stocks & Shares ISA or a Cash ISA.

The maximum you can subscribe into a Cash ISA is £3,600 and the balance, or full amount up to £7,200 into a Stocks & Shares ISA. This means that the overall new investment into an ISA during a tax year limited to a total of £7,200 with all providers.

Although over time you may end up with many ISA plans, you may only contribute a maximum of £7,200, during any single tax year, into an ISA. This is can be made up of a maximum investment of £3,600 into a Cash ISA and the balance, or full amount, into a Stocks & Shares ISA.
Each tax year you may decide to contribute to a different ISA provider to those you have contributed to before.

Under current legislation ISAs have considerable tax incentives over other forms of investments or savings

• Interest will be added to your account without the deduction of any tax
• If you withdraw this interest to spend as income, then you have no liability to income tax on the money you receive from your ISA investment
• You may withdraw your money at any time without losing any of the tax advantages
• There is no requirement for you to declare interest that is added to your ISA plan to the HM Revenue and Customs. You do not even need to mention that you have an ISA on your Tax Return.

One of the major attractions of all ISA plans is that they offer you excellent access to your money. You can withdraw your money at any time without losing any of the tax relief that has been granted to your plan.

Some ISA plans may run for a fixed period or require you to give notice of withdrawal. With these particular plans you could lose some interest or bonuses should you elect to withdraw your money early. You should always read the terms of your ISA plan carefully and pay particular attention to any conditions applying to withdrawing of your money.

The term CAT stands for Charges - Access - Terms.

On the introduction of ISAs in 1999, the Government laid down a set of standards for ISA products. These standards are designed to help savers/investors find an ISA that offers reasonable Charges, easy Access to the money invested and fair product Terms.

From 6 April 2005 the Government introduced the Stakeholder ISA. To earn the name ‘stakeholder’ the products have to meet conditions designed to ensure that they are straightforward and good value.

Stakeholder ISAs replaced CAT-standard ISAs from 6 April 2005 onwards. However, if you took out a CAT-standard ISA before that date, it will continue to meet the CAT standards. (‘CAT’ stands for fair Charges, easy Access and decent Terms.)

Neither the Stakeholder conditions nor the CAT standards guarantee the performance of a product. They do not mean that the Government recommends the product or that it is necessarily suitable for you. But they do provide a useful benchmark against which to compare other products.

For Cash ISAs

• They must permit minimum contributions of £10.
• They must not have limitations on the frequency of withdrawals
• The interest rate paid must be no less than 1 per cent below the Bank of England base rate.
• If the Bank of England base rate goes up, the minimum interest rate must also go up within one month.

Any ISA plans you hold will end on the date of your death. No tax will be due on any interest added to the ISA up to that date. However, if the plan continues after your death, then your personal representatives will be liable for taxation on any subsequent interest added.

The value of any ISA plans will be added to the rest of your assets when calculating the value of your estate for Inheritance Tax purposes.

Should you wish to include new investment or savings opportunities that are not provided from your current ISA manager then you may have to transfer your money to another manager.

Since April 1999 both Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) have been replaced, in respect to the starting of any new plans, by ISAs.

Tax-exempt special savings accounts (TESSAs) are no longer available, and the last TESSAs matured on 5 April 2004. You had six months from the date your TESSA matured (in other words up to 5 October 2004 in the case of the very last TESSAs) within which to transfer to a Cash ISA.”