ISA stands for Individual Savings Account, a tax-efficient wrapper offered under Government legislation as a way of encouraging you to save. An ISA sits over your choice of a number of different investments to shelter them from further tax on any income or gains earned.
There are just two types of ISA – the Cash ISA and the Stocks and Shares ISA – and the combined allowance for both in 2010/11 is £10,200.
Within this, the limit for Cash ISAs – or for the cash element within a Stocks and Shares ISA – is £5,100. However, there is flexibility over how these limits can be used – you can, for example, put the maximum £5,100 in a cash account and £5,100 in a stocks and shares account.
Alternatively, though, if you place just £2,000 in cash, you can use the entire remaining balance – £8,200 in this case – to invest in stocks and shares. If you don’t need cash at all, you can put the full £10,200 into stocks and shares.
In addition, you can transfer existing Cash ISA holdings to a Stocks and Shares ISA without impacting on your current tax year allowance. So, if you have £10,000 already sitting in existing cash ISA plans then this amount can be moved to a Stocks and Shares ISA, yet leave your entire current tax year allowance still
available for new investment.
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