INVESTMENTS

We explain how ISAs work and what the changes mean.

What are ISAs?

ISAs cannot be held as joint accounts or on behalf of other individuals.

NEW ISA & PEP RULES

An ISA (individual savings account) is a tax-free savings vehicle. The fact that returns are tax free is a big advantage, as investments held outside an ISA wrapper are liable to income or capital gains tax.

How much can I invest?

There are a number of ISA regulations including:

Age - You must be over 18 to open a Stocks and Shares ISA. Cash ISAs can be opened by anyone of age 16 or over.

Annual limit - You can invest up to £10,200 (From 6 April 2010) through ISAs each tax year.

You can invest up to £5,100 of this allowance into a Cash ISA and the remainder of the £10,200 total into a Stocks and Shares ISA. ISA investments are protected from tax on any income or capital gains made from them.

How many ISAs can I have?

You can open one cash ISA, and one stocks and shares ISA each tax year.

Your annual allowance can be split 50:50 so half goes into a cash ISA while the other half can be invested in a stocks and shares ISA.

The new rules mean the over-50s are able to invest £5,100 in a cash ISA (while the cash ISA limit for savers under 50 will remain at £3,600 until next April).

Alternatively, your full allowance can be invested in a stocks and shares ISA. The ISA is effectively a tax wrapper like a pension, so you can choose the underlying investments your money is invested in. Various non-cash assets can be held in a stocks and shares ISA, including unit trusts, investment trusts, open ended investment companies, bonds, individual shares and exchange traded funds.