Unit trusts and OEICs
ISA stands for Individual Savings Account .
We categorise ISAs according to the different types of underlying investment available as follows:
Investment Trust ISA
Bank or Building Society Cash ISA
There are few restrictions in the types of shares you can invest in through ISAs. For instance you can invest just as much in US shares as in the UK and the EU. It will probably be advisable to invest through Investment Trust Shares, or OEIC Index Tracker but you will usually also be able to invest in Gilt Index-Linked, Gilt Fixed Interest (provided the stocks have more than 5 years to run when bought for your ISA) or Stock Corporate or Retail Bond either in a fund or an individual bond or stock (provided the bond or stock has more than 5 years to run when bought for your ISA) .
Up to £11,280 since 6 April 2012 can be invested each year per person in an ISA of which £5,640 can be kept as a tax free cash deposit. The amounts rise to £11,520 and £5,760 from 6 April 2013. Where you just decide to invest in the cash deposit, we call it a Bank or Building Society ISA . Cash unit trusts are not be eligible for the stocks and shares component. You can temporarily keep money in the shares and stock component in cash, in which case 20% tax is payable on the interest.
Since tax changes to the treatment of dividend income which have been phased in, the only tax advantage of an ISA invested in quoted shares is that gains are exempt from capital gains tax. For basic tax payers invested in UK shares, the tax on the dividend is the same although higher rate taxpayers pay slightly less.
Last updated 5 December 2012.