The rules on what can be invested in an ISA are complex. The maximum which can be invested in any tax year in equities under a 'maxi' ISA is £7,000. Once you have invested up to your limit and you subsequently withdraw money you cannot simply put it back later in the year.

 

 

 

April 5th, 2008 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 2007/2008 tax year.

 

Up till this date, you are allowed to invest up to £7,000 into an ISA, either into a:

	‘Maxi’ ISA, in which you can place up to £7,000 in equities, or a mixture which includes up to £3,000 in cash and £1,000 into an insurance-style product, or a
	‘Mini’ ISA, which allows you to invest in separate ISAs from different providers. Here, the limit is £3,000 for cash, £1,000 into an insurance product and £3,000 in a share-based one. However, these limits are not portable. If you don’t invest up to your full limit, you lose that part of the allowance. Use it or lose it by April 6th!

 

In the March 12th 2008 Budget, Alistair Darling announced an increase in the upper limit to £7200 per annum. The cash element of this can now be up to £3600.

 

Up till April 2004, capital growth and income from equity investments held in an ISA were free of tax and any benefits from approved life insurance policies could also accrue tax-free. Now the tax credit on dividends within equity ISAs has been scrapped. You don't have more income tax to pay, but your fund manager will not be able to reclaim the credit of 10%.

 

This is affecting fund returns to the tune of around £150m a year. Effectively this means that annual dividends on a typical equity income fund are now more than 0.3% lower.

 

Most experts nevertheless think it is still 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 higher rate taxpayers, the dividend tax benefits are also definitely worth having. Higher rate taxpayers effectively save 22.5% in income tax on dividends paid within an ISA. And if ISA assets are held within corporate bonds, all income is tax-free.

 

One of the newest products around, and one we think is definitely worth considering, is the stocks and shares Halifax ISA.