Despite having been around since 1999, many people still regard ISAs as complex financial products. They are not. They are simply free-of-tax 'wrappers' into which you can put cash and shares.

 

The rules on what can be invested in an ISA have been simplified since early 2008. From April 5th, 2011, you can invest up to £10,680 in any tax year into an ISA. Once you have invested up to your limit and you subsequently withdraw money you cannot simply put it back later in the year. You also need to be over 18 and resident in the UK.

 

A couple on the higher rate tax bracket can now put away a combined tax-free total of over £20,000, which is more than adequate for most people.

April 5th, 2012 marks the end of the tax year. By this date you should have decided whether you will be making any payment into an Individual Savings Account for the 2011/2012 tax year.

The overall annual ISA allowance of £10,680 can be made up with all equities, or a mixture of cash and equities. The annual limit for a cash ISA is £5,340.

Most experts think it is worth holding ISAs. All assets held within an ISA will remain exempt from CGT (Capital Gains Tax). So not only is there no need to inform the Revenue when you sell your holdings, you can trade freely within the ISA without worrying about CGT liabilities. You don't have to declare an ISA on your tax return. 

 

For taxpayers on the 40% or 50% rates, the dividend tax benefits are also definitely worth having. Higher rate taxpayers effectively save 22.5% and 32.5% respectively in income tax on dividends paid within an ISA. And if ISA assets are held within corporate bonds, all income is tax-free.