How do I maintain my tax efficient status for my cash ISA and stocks and shares ISA?
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Is there a difference for cash ISA and stocks and shares ISA? What are the general guidelines to maintain my tax efficient status.
poshjosh
1 year ago
petematthew
answered 1 year ago
Yes, there's a difference. If you think of an ISA as a bucket with tax rules attached to it, the difference between a cash ISA and a stocks and shares ISA is what you can put in the bucket. The other difference is in the limits. The overall ISA limit is £10,200, rising to £10,600 next year. Of this, the most you can have in a cash ISA is £5,100. If you do this, you still have another £5,100 you can put in a S&S ISA. If, however, you put the full £10,200 into a S&S ISA, you cannot have a cash ISA in that tax year.
Remember that the limits are how much you put in each tax year, not on how much you have in, so every April 6th, you get a new allowance. Cash ISAs can be held from age 16 up, and S&S ISAs from aged 18 up. There is talk of a new Junior ISA designed for children which will replace, to some extent, the now defunct Child Trust Fund. Not many details are out in the open about these yet.
As long as you don't withdraw the money from your ISA, it will remain tax efficient. Only Cash ISAs are completely tax free, because the interest is paid gross, that is, before income tax. Income from an S&S ISA is often in the form of dividends, not interest. These have a notional 10% deducted before you get the dividend, and that 10% cannot be reclaimed. S&S ISAs are free of Capital Gains Tax though.
You can transfer an ISA from one provider to another and keep your tax free status. You can also transfer a cash ISA into a S&S ISA, but not the other way round.
Hope that helps
Pete Matthew - meaningfulmoney.tv
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Remember that the limits are how much you put in each tax year, not on how much you have in, so every April 6th, you get a new allowance. Cash ISAs can be held from age 16 up, and S&S ISAs from aged 18 up. There is talk of a new Junior ISA designed for children which will replace, to some extent, the now defunct Child Trust Fund. Not many details are out in the open about these yet.
As long as you don't withdraw the money from your ISA, it will remain tax efficient. Only Cash ISAs are completely tax free, because the interest is paid gross, that is, before income tax. Income from an S&S ISA is often in the form of dividends, not interest. These have a notional 10% deducted before you get the dividend, and that 10% cannot be reclaimed. S&S ISAs are free of Capital Gains Tax though.
You can transfer an ISA from one provider to another and keep your tax free status. You can also transfer a cash ISA into a S&S ISA, but not the other way round.
Hope that helps
Pete Matthew - meaningfulmoney.tv
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
your question is a little vague but in order to continue to contribute to an ISA you must meet the HMRC eligibility criteria which is age 16 for cash and 18 for stocks & shares and be liable to UK tax. Generally this means that if you leave the country you lose the ability to contribute until you return (exceptions are in place for Crown Servants, their spouses and other specially designated people). If you leave the UK permanently it is worth remembering that your assets will then be subject to the tax regime where you reside and that domicile will almost certainly not adopt the ISA perks and you will become liable.
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Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
on another note, next year's ISA allowance will not be £10600 as the Chancellor announced that the ISA allowance will be index linked and rounded up to make it divisible by 12 to make it easier for monthly savers to invest a full £.
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Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
....and an additional note about stocks and shares ISAs. Dividends paid by company shares held within ISAs are taxed at 10%, and are free of any further tax liability. The same shares held outside an ISA also have dividends paid less 10% tax, though higher rate taxpayers will have a further tax liability on them.
However, some investments which you might at first glance think of in the same way are completely tax-free within an ISA. These are corporate bond funds, which often form a relatively low-risk and (if required) an income-producing part of an investment strategy. Their tax-free status is because the payments made are treated as interest, and interest is paid from ISAs free of all tax.
Whatever kind of investment is held within an ISA, there is no capital gains tax liability at all when the investments are sold.
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However, some investments which you might at first glance think of in the same way are completely tax-free within an ISA. These are corporate bond funds, which often form a relatively low-risk and (if required) an income-producing part of an investment strategy. Their tax-free status is because the payments made are treated as interest, and interest is paid from ISAs free of all tax.
Whatever kind of investment is held within an ISA, there is no capital gains tax liability at all when the investments are sold.