New ISA's or NISA's
As from 1st July 2014, ISA's are to be referred to as new ISA's, abreviated to NISA's.
What is now allowed within these NEW ISA's?
Up to £15,240 can be paid into a cash ISA or a Stocks and Shares ISA or any combination of the 2, providing the total limit of £15,240 is not breached.
In July 2014 when the investment amount was increased to £15,000, there was a ban on transferring from S&S ISA to cash ISA. Cash to S&S has been allowed since 2008/2009.
- Dividends are not subject to additional tax, interest on bonds is not taxed, and capital gains are not taxed (nor may capital losses be used to offset other gains).
- There is no need to report interest or other income, capital gains or trades to HMRC as it is not taxable income. This is a considerable paperwork reduction for active traders or those who may otherwise be required to report their trades because they have total sales value exceeding four times the annual CGT allowance, which outside a tax wrapper would require that all trades be reported even if there is no capital gains tax to pay.
A NISA is an advantages tax wrapper, with regard to stocks and shares ISA’s in simple terms all the capital growth and any income distributions within the plan are free of tax. Unfortunately, the additional tax advantage of the repayment of the tax paid on dividends, that the fund managers of NISA based funds were previously eligible to, is no longer available due to the removal of this tax break by the chancellor. With regard to cash NISA’s, simply all of the interest is tax free.
It is a common misconception to mistake the tax efficiencies of a NISA wrapper with the performance of the underlying funds inside that wrapper. ISA’s are simply a vehicle for the underlying investment. It is of paramount importance to make sure that the underlying funds within the wrapper are of high quality. Major considerations are:
- Quality and continuity of past performance
- Experience and track record of the fund managers responsible for the investment fund
- Identify funds with solid and consistent performance
- Balance your existing ISA portfolio (this includes any old PEP plans) in such a way that the downside is minimised in the poor markets, while the upside is not too inhibited in the fair weather markets
- Monitor and maintain the performance and charges of the funds you are already invested in.