Tax Video Update - ISAs
24 February 2014 •
Warrener Stewart Tax Update
Are you using your ISA allowance?
Individual Savings Accounts or ISAs are a method of UK residents making tax efficient investments with instant accessibility.
There are two kinds of ISA:
- Stocks and Shares (Listed and AIM) ISA
- Cash ISA
How to subscribe
ISA providers include banks, investment advisors and even some supermarkets. There are also many online providers.
It is possible to move existing shares into an ISA by “bed and ISAing”. For example if you have 1,000 M&S shares which you want to move into an ISA, you can sell them and your ISA manager should be able to use the proceeds to buy 1,000 M&S shares the same day.
How much can I invest?
Before 5 April 2014 you can invest up to £11,520 in a stocks and shares ISA and up to £5,760 in a cash ISA. But the amount you invest in a cash ISA reduces the amount you can invest in a stocks and shares ISA. For example if you invest £5,000 in a cash ISA, you can only invest £6,520 (£11,520 - £5,000) in a stocks and shares ISA.
For 2014/15 you can invest up to £11,880 (less anything you invest in a cash ISA) in a stocks and shares ISA and you can invest up to £5,940 in a cash ISA.
Therefore in the next 2 months you could invest up to £23,400 in ISAs: £11,520 in March and £11,880 after 5 April.
Holding stocks and shares in an ISA
If you hold shares, why hold them in an ISA? Two good reasons:
- Shares in an ISA are income tax and capital gains tax free.
- You don’t need to declare them on your tax return (so less administration).
You are not locked into the ISA - you can withdraw the shares at any time with no consequences.
The only possible disadvantage is if the shares go down in value: if you dispose of shares at a loss and they were in an ISA, you can’t get relief for the loss.
(For US citizens, you can benefit from an ISA if you are UK resident, but the income and gains will still be taxable in the US.)
Conclusion
Moving shares into an ISA may save tax and administration both now and in the future.