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UK AUTHORISED UNIT TRUST OR OEIC

Stocks & Shares ISA

(Also called Individual Savings Account)

A means of investing up to £7,200 a year in investment trusts which will then be exempt from any capital gains tax when you sell and also exempt from higher rate income tax.

Changes in the tax rules mean it is probably better to invest direct, see Unit Trust or OEIC Index Tracker is probably the best bet but there is also Unit Trust or OEIC Ethical Fund.

Who can invest UK residents 18 or over. Joint plans are not allowed but husband and wife can have one each. You can only invest in one Stocks & Shares ISA from one manager in each tax year.

How worthwhile Good value for higher rate taxpayers. For others, the smallish tax concessions are not very worthwhile. Compare with Investment Trust Stocks & Shares ISA and Unit Trust or OEIC Index Tracker. You have a choice of using your limit instead in full or part on a fixed interest investment which you gives better income tax relief, see Stock ISA. You can also invest in offshore funds with high guaranteed returns, seeOffshore 'Premium' Income Bond. Finally there is a chance to invest up to £3,000 of the £7,000 limit in cash on deposit . You might consider putting your money in using a monthly savings plan. Choose a scheme which is a CAT Standard ISA.

Minimum Regular: £30 a month, £50 a month,£100 a month. Lump sums Usually £500 or £1,000.

Maximum £7,200 a year since 6 April 2008.

Suitable Regular savings. Lump sums.

Money back You can normally sell the units when you like. If you die the plan ends. Only a few groups allow you to go liquid once you have invested.

Interest Variable. Called distribution. The before tax inncome is called the yield . The yield is usually calculated after deduction of the yearly fund charge. Some trusts calculate the yield without deducting the charge which gives the impression of a higher yield. These are marked with a 'C' in the Financial Times unit trust prices page.

Interest paid Dividends may be accumulated; or paid by cheque to you or to a bank account, usually half-yearly You usually have a choice of whether interest is paid out or accumulated.

Tax Income is taxed at 10% on shares; nil on stocks; 20% on money on deposit awaiting investment. Nothing need be entered on a tax return. Capital gains are tax exempt.

Fees to pay Usually same as for unit trusts: Initial nil to 6%; yearly ½% to 1½%. Some managers, not listed here, charge you twice: once for the ISA and again within the Unit Trust. Some managers listed below don't have an initial charge, or have a low one. Sometimes, even if there is no initial charge, there is an exit charge if you sell within the first 5 years; exit charges often reduce year by year, say from 5% in year 1 to 1% in year 5. Charges are low and strictly controlled with a CAT standard ISA.

Passbook Statements sent.

Children Not allowed.

Risk High but not as risky as buying individual shares.

How to invest Phone a manager, ask for details and compare them. Monthly investment by direct debit from a bank account.

Where from Invest direct instead.

Other types of Unit Trusts
Investment Trusts
Contents

Last updated 14 April 2008.