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The replacement for PEPs and TESSAS. Don't panic, you can keep your PEPs indefinately, and your TESSAS to maturity (and see TESSA ISA below for a special deal). Got a PEP mortgage? Start your ISA now! or find yourself without enough money to pay off the mortgage. (50% of all PEP mortgage holders haven't switched as of May 99).
Rant - There is an old saying, "If ain't broke, don't fix it". Let it be known that there were no problems with PEPS and TESSAS that ISAs solve. ISAs are a complex replacement for simple products and as such can only be explained as political pique. Interestingly you can't actually invest as much in ISAs as you could with PEPs and TESSAS. End Rant.
Quick and dirty guide to using ISAs.
What they are
A tax efficient wrapper for individual investment.
Flexibility
In either case you can contribute when you like, and take your money out when ever you like.
Who qualifies.
You have to be over 18 and UK Resident for tax purposes, (strictly speaking Resident and Ordinarily Resident), and/or a Crown employee paid by the Government while working overseas, (e.g. diplomats and armed forces).
All ISAs are owned by an individual. No joint ISAs, no ISAs held on behalf of others, (though there is nothing to stop you setting up an ISA in your own name and handing the proceeds to someone else, e.g. a child, in the future).
Charges and CAT standards
Plan mangers can impose any terms or charges that they like (as they can with any investment), but those that meet certain criteria laid down by the Government for low Charges, easy Access and fair Terms can claim to meet the CAT Standards. While this is a useful standard it has the effect of limiting the options open to the Plan Manager. It is important that you are sure that you want your ISA to operate within these restrictions. They could result in your fund performance being lower than otherwise. See CAT Standards - Uses and Limitations.
Transfering funds between ISAs
Broadly speaking you can transfer funds between managers whenever you want, but see the Maxi and Mini details below. Also plan managers are free to impose restrictions and terms on transfers.
When transferring money invested in previous years you can move it in whole or in part.
When transferring money invested this year you must transfer ALL of the money invested to the new ISA.
Tax aspects
There is no income tax on any income, or capital gains tax on any gains. (Corollary - no CGT losses within the ISA can be used to offset gains outside it). Life policy proceeds are tax free.
There is no need to tell the Inland Revenue anything about your ISAs. You don't even have to tell them that they exist.
ISAs end on death, and their value at that time IS included within your estate for Inheritance Tax purposes.
ISAs come in two main forms - Maxi and Mini, plus, for the moment TESSA ISA.
Rule number 1 - always use a Maxi ISA if you want to invest more than £3000 in stocks and shares that year.
You can invest up to £5000pa, (£7000 in 99/00). The funds can be invested in Stocks and Shares, or, if you prefer, up to £1000 can be invested in Cash, (£3000 in 99/00), and £1000 in Life Assurance, (no special deal for 99/00).
The monies invested in one component must stay with that component until cashed in, even if you transfer to another plan manger.
You can contribute to only one Maxi ISA each year. Be it new or existing.
The Maxi ISA funds have to stay with one plan manager for ALL their components, (ie if you choose BigLife Maxi ISA for their unit trusts, then your cash element has to stay with whatever BigLife are offering).
You cannot contribute to a Maxi ISA if you have already contributed to a Mini ISA in that year.
Mini ISAs come in three flavours:-
You can contribute to one of each, each year, but not if you have already contributed to a Maxi ISA.
You can place each Mini ISA with a different plan manager.
The best way to think of you investments is as your Equity ISA, your Cash ISA and your Life ISA, and never the twain shall meet. I.e. if you transfer your Cash ISA to a new manager it can only go into that managers Cash ISA. To move funds from a Cash ISA to an Equity one can only be done by cashing in the Cash ISA and treating the investment into an Equity one as new money.
When your TESSA matures you can use the capital element (not any interest) to invest in special TESSA only ISA, a Cash Mini ISA or the cash component of a Maxi ISA.
Any investment is in addition to your normal annual ISA limit.