The government's 1997 election manifesto promised to promote long term savings in the same way as PEPs and TESSAS, and as a result the new Individual Savings Account, or ISA, was, born.
As a new tax-free savings vehicle, the ISA is available from April 6, 1999 and is guaranteed to run for at least ten years.
Year one will see maximum investments per individual of £7,000, £3,000 of which can be cash and up to £1000 in life assurance. Following years will allow £5,000 to be invested, of which no more than £1,000 can be in cash and £1,000 life assurance, but there will be no lifetime limit and no minimum subscription as first suspected.
The structure of an ISA will permit stock-market linked investments (stocks, shares, unit trusts, investment trusts etc) to be held, alongside life assurance products and cash savings. These three possible component parts may be held either
In a Maxi-ISA where all three parts are contained in one single ISA 'wrapper' offered by a sole product provider, or
In Mini-ISAs where cash equities and insurance products may each be held in separate accounts with different product providers.
The idea behind this differentiation is that it will create, greater competition between fund managers, insurance companies, banks, and building societies.
The proceeds of TESSAs maturing after April 5, 1999 will be able to be paid into an ISA without the paid-in amount counting against that years cash allowance.
So what will be the effect on current PEPs and TESSAs and how will the ISA compare in terms of performance and charges?
Investments into TESSAs can still be made until April 5, 1999 but no further contributions can be made after that date. TESSAs will then be allowed to run their full five year course at the end of which they can be transferred into ISAs as already mentioned.
Investments in PEPs can be made until, April 1999 and all PEPs held at that date can continue to be held as PEPs outside the ISA but with the same tax advantages.
This includes the 10 percent tax credit on dividends from UK equities until April 5, 2004.
Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.
Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.
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