What is an ISA?

An ISA, or Individual Savings Account, is quite simply a wrapper in which you can hold a wide range of investments and shelter your returns from tax.

Each tax year you can invest up to £7,200.
A tax year runs from 6 April to 5 April the following year.
Your investments grow free from tax.
Any UK resident over 18 can invest (16 for Cash ISAs).
Access to your money whenever you need it.

If you use your allowance every year, ISAs offer you the chance to build your own personal tax haven. However, miss the deadline for a tax year and you lose that part of your ISA allowance forever.

Inside the ISA wrapper you can switch your investments whenever you like.

Don't underestimate the tax benefits

Within an ISA gains are tax free and there is no tax to pay on the income. You don't even need to mention ISAs on your tax return. Less tax means higher returns for you. Read more…

Each year you can make a certain level of capital gains without paying tax. This year your allowance is £9,600. Whilst capital gains tax might seem like a good problem to have, it is even better if you can have the gains without the tax, and it is surprising how quickly gains beyond your allowance can be achieved.

For example, if you had invested £7,000 (the old ISA allowance) in an average performing UK All Companies Fund at the beginning of 2003, 2004 and 2005, then you would already be making a gain in excess of your annual capital gains allowance. If you had been fortunate enough to invest in one of the top performing funds, just £7,000 invested at the beginning of 2003 outside an ISA would present you with a capital gains tax bill if you decided to take profits today, but please remember that past performance is not a guide to future returns.

How to hold your ISAs

The new and increasingly popular way to hold ISAs is in fund supermarkets. This offers more convenience and choice. You can hold funds from different fund managers in the same ISA and economies of scale mean you can save money. Read more…

This allows you to hold all your ISAs in one place with one independent administrator providing one valuation and dealing service. We believe the HL Vantage Service, our fund supermarket, is simply the best way to manage your ISA.

The traditional way to hold ISAs was direct with the fund managers who would also provide administration of the ISA and so only allow you to hold their funds in your ISA. It was difficult to monitor and manage if you had diversified your ISAs between several different fund managers because it meant paperwork came from all directions, different valuations at different times and different dealing numbers.

When dealing with something as important as your investments, it is good to be in control.

Our Vantage Service is a unique type of fund supermarket. As we administer the investments on your behalf, we can take care of your paperwork. It offers more choice, with independent comment and research to help you make the most of that choice. It is also lower cost. We provide not only the best initial savings, we pay you annually on many of the funds you can choose to hold in your ISAs.

The new ISA allowance

On 6 April 2008 the ISA rules were changed. Mini and Maxi ISAs were replaced with Cash ISAs and Stocks and Shares ISAs and the annual allowance rose to £7,200. This means you can invest up to £7,200 in a Stocks and Shares ISA, or up to £3,600 in a Cash ISA with the balance (within the overall limit) in a Stocks and Shares ISA.Read more…

If you want to maximise the use of your ISA to shelter stocks and shares investments from tax, you should choose to invest the full £7,200 in a Stocks and Shares ISA. If you feel it equally important to shelter your cash from tax you can choose to save up to £3,600 within a Cash ISA and the remaining £3,600 in a Stocks and Shares ISA.

You can also transfer existing ISAs to Hargreaves Lansdown without affecting the amount you can invest in each tax year.