ISAs, PEPs and TESSAs Guide

ISAs (Individual Savings Accounts)

Some More Points in Detail

The CAT Standards

There are different CAT standards for cash, stocks and shares and life insurance ISA investments.

The standard for cash ISAs

Charges
  • There must be no one-off or regular charges of any kind, such as charges for withdrawals or for any regular service (such as use of cash machines). Charges for replacements (such as duplicate statements or lost cards) are permitted, however.
Access
  • The minimum transaction must be no greater than £10.
  • Savers must be able to withdraw their money within seven working days or less.
Terms
  • The interest rate must be no lower than two percentage points below base rate.
  • Upward interest rate changes must reflect base rate movements within a calendar month. Downward changes may be slower.
  • There must be no other conditions (such as limits on frequency of withdrawals).

The standard for stocks and shares ISAs

Charges
  • The total charge must be no more than 1 per cent of net asset value per year.
  • There must be no other charges to be paid by the saver.
Access
  • You must be able to put in amounts as small as £500 for a lump sum or £50 a month for regular savings.
Terms
  • Investment may be in authorised unit and investment trusts or in open-ended investment companies.
  • A fund must be at least 50 per cent invested in ISA-qualifying shares and securities that are listed on European Union stock exchanges.
  • Units and shares must be single priced (that is, no separate buying and selling prices)
  • The investment risk must be highlighted in product literature.

A CAT standard stocks and shares ISA may hold units or shares in one or more funds which meet these requirements. If holding them in the ISA entails any additional features (such as additional charges) these should be taken into account in deciding whether the ISA meets the standard.

The standard for life insurance ISAs

Charges
  • The annual charge must be no more than 3 per cent of the value of the fund.
  • There must be no other charges (such as a separate charge for the guarantee on surrender values).
Access
  • The minimum premium must be no more than £25 a month for regular savings, or a £250 lump sum.
Terms
  • Surrender values should reflect, over time, the value of the underlying assets of the fund.
  • There must be no specific surrender penalties
  • Three years after paying a premium, and thereafter, the surrender value should at least return the value of the premium.

A CAT standard life insurance ISA may hold one or more life insurance policies. If holding them in the ISA entails any additional features (such as additional charges) these should be taken into account in deciding whether the ISA meets the standard.

A CAT standard life insurance ISA may permit lump-sum savings, regular savings, intermittent savings or any combination of these. The surrender value guarantee applies separately to each premium payment.

Savings and investments that can be included in ISAs

The cash component can include

  • bank and building society accounts
  • units or shares in UK authorised unit trusts and open-ended investment companies (oeics) which are money market schemes (sometimes called ‘cash funds’) and fund of funds schemes which invest in them
  • National Savings products which are specially designed for ISAs (but not other National Savings products such as the Investment Account, Savings Certificates or Pensioners’ Guaranteed Income Bonds).

The stocks and shares component can include

  • shares and corporate bonds issued by companies listed on a recognised stock exchange anywhere in the world
  • gilt edged securities (‘gilts’), similar securities issued by governments of other countries in the European Economic Area and ‘strips’ of all these securities
  • units or shares in UK authorised unit trusts or open ended investment companies (oeics) which invest in shares and securities (called securities schemes and warrant schemes) and fund of funds schemes which invest in them
  • shares and securities in approved investment trusts (except property investment trusts)
  • units or shares in Undertakings for Collective Investment in Transferable Securities (UClTS) funds based elsewhere in the European Union (these are similar to the UK authorised unit trusts and OEICS listed above)
  • any shares which have been transferred from an Inland Revenue approved all-employee scheme under the special rules described on page 12.

These investments must meet certain conditions to qualify for ISAs. ISA managers will be able to tell you which ones can be included in their own ISAs.

The life insurance component can include

  • ‘unit linked’ or ‘investment linked’ policies. This is like a ‘pooled’ investment such as a unit trust
  • ‘with profits’ policies. This is a more traditional type of life insurance policy where you participate in the profits the insurer makes from investing your premiums through ‘bonuses’ which the insurer declares, usually once a year.

Note: The life insurance component can include only certain life insurance policies on the saver’s own life, which are specially designed for ISAs. These may be the ISA manager’s own policies, or the ISA manager may offer a range of policies from different insurers.

ISA policies must meet a number of conditions to qualify. Managers of life insurance ISAs will be able to give you details of their own policies.

A note on holding cash in the stocks and shares and life insurance components

Cash may only be held in the stocks and shares and life insurance components of ISAs for the purpose of investing in qualifying stocks and shares or life insurance policies. This includes cash subscriptions, interest and dividends, and proceeds from disposals of qualifying investments which have not yet been reinvested.

The ISA manager may pay interest on this cash while it is held in the account. There is no income tax to pay on this interest, but the manager is required by law to deduct a flat rate 20 per cent charge before crediting it to the account. You do not have to declare this interest on a tax return.

The choice between Maxi or Mini

You can put money into any of the three components of a Maxi ISA. If you do not put the maximum allowed into the cash or life insurance components (where they are offered by the Maxi ISA), you can put the excess into the stocks and shares component.

With Mini ISAs the limits are fixed. This means that even if you put nothing into, say, a cash Mini ISA during the year, you could still only put £3,000 into, say, a stocks and shares Mini ISA.

This table shows how many ISAs you can have and how much money you can put into each.

Your options in
a tax year
Total investment allowed in each tax year 2001/ 2002 to 2005/ 2006 Total investment allowed in subsequent tax years from 2006/ 2007 Maxi or Mini?
One Maxi ISA Up to £7,000 but no more than£3,000 in cash and £1,000 in life insurance Up to £5,000 but no more than £1,000 in cash and £1,000 in life insurance You should always choose a Maxi ISA if you want to invest more than £3,000 in stocks and shares
Up to three Mini ISAs
  • Up to £3,000 in a stocks and shares ISA.
  • £3,000 in ACASh ISA.
  • £1,000 in a life insurance ISA
  • Up to £3,000 in a stocks and shares ISA.
  • £1,000 in a cash ISA.
  • £1,000 in a life insurance ISA
You should always choose Mini ISAs if you want different managers to manage your different kinds of savings

 

Remember, you can also put any money you paid into a maturing TESSA into a cash Mini ISA or into the cash component of a Maxi ISA or into a TESSA only ISA. For more info see the next page.

Whether you choose a Maxi or a Mini ISA in any year is up to you, but remember

  • if you want to invest more than £3,000 in stocks and shares, you must open a Maxi ISA
  • if you want different ISA managers for different kinds of saving, you will need Mini ISAs
  • always shop around for the arrangement that will give you the best deal or is most convenient.
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