The New ISA
Any individual, who is an income tax payer and has money to save or invest, should know about New Individual Savings Accounts (NISA’s).
NISA’s offer an attractive tax-favoured shelter to anyone aged 18 or over (16 or over for cash NISA’s). Taxpayers normally have to pay tax on any interest earned on their money. This tax is deducted automatically, reducing the amount you receive. Similarly, tax must be paid on the income and profits made from investments.
NISA’s serve as a ‘wrapper’ to protect savings from tax, allowing individuals to invest up to the maximum limits (£15,240 in 2015-16) each tax year in a range of savings and investments and pay no personal tax on the profits. The benefits are:
• No personal tax (income or capital gains) on any investments in a NISA.
• Income and gains from NISA’s do not need to be included in tax returns.
• Money can be withdrawn from a NISA at any time without losing the tax breaks.
How NISA’s work
There are two types of NISA:
• Stocks and shares, in the form of either individual shares or bonds, or pooled investments such as open-ended investment funds, investment trusts or life assurance investments.
• Cash, usually containing a bank or building society savings account.
All of your allowance can be invested in either stocks and shares or cash, or you can split it between the two either with the same or a different provider. You will also be able to transfer money saved in previous years' cash NISA holdings to stocks and shares NISA’s without affecting your current year's allowance. It should be noted that it is now possible to transfer in the opposite direction i.e. stocks and shares NISA to a cash NISA.
Collective investments or Managed Funds
These allow individuals to participate in a large portfolio of securities by pooling their money together with other investors. This gives an individual investor access to a much wider spread of holdings than can normally be achieved with smaller sums of money, which in turn reduces the risk. The fund is divided into units or shares, which are valued on a daily basis and reflect the underlying value of the fund. This value will fluctuate on a daily basis with market conditions. Managed Funds are a flexible and relatively cheap way to invest in the share market. They are strictly regulated and you can hold them within an ISA.
Type of Investments You Can Use
These include Cash and Fixed Interest which generally earn lower returns than growth investments such as shares or property. However, they are not as volatile, and the value of the investments do not fluctuate greatly over time. They are Defensive as they help to protect the capital you invest from the risk of loss over time.
Growth investments, such as shares and property, typically offer a higher rate of return over the long term, but there is greater fluctuation in value in the short term. There is usually potential for capital growth, and there can be a high level of risk to your capital associated with this type of investment. But generally they provide higher returns than cash or fixed interest.
Remember, when you invest:
• Past performance is no guarantee of future returns.
• The value of managed funds and the income from them can fall as well as rise.
• The value of an investment is not guaranteed and on encashment you may not get back the full amount invested.
Assessing Your Risk Profile
Barnes & Sherwood have a robust process for assessing the risk you are willing and able to take. We do this by:
• Assessing your capacity for loss,
• Engaging you in a suitability assessment process of risk-profiling, which acts in your best interests, then identifying the risk you are best suited to taking,
• The questions and answers used to establish the risk you are willing and able to take, and the descriptions to communicate this are fair, clear and not misleading,
• A robust and flexible process is in place for ensuring investment selections are suitable given all aspects of your investment objectives and financial situation, as well as your knowledge and experience,
• Ensuring you understand the nature and risks of products or assets selected.
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.