The good news for all of us is that the UK has some of the most generous tax breaks, which the government has confirmed will last indefinitely!

Starting in April 2008, people can subscribe up to £7,200, in each and every tax year, allowing any gains to be free from both income and capital gains tax*. However, as allowances cannot be carried forward they must be used within that tax year or they will be lost.

Having completed a major review of ISAs, the government has confirmed that a number of changes will come into effect which it claims will make saving simpler and more flexible. So what are the changes?

The Government has swept away any doubt that ISAs may have been scrapped and has kept the future of ISAs open. The maximum amount that can be saved in a stocks and shares ISA from April 2008 will be £7,200 - up £200 from when they were introduced in 1999.

Cash ISA allowance have also been raised from £3,000 to £3,600

All existing PEPs will automatically become ISAs, keeping their tax efficiency.

The distinction between mini/maxi ISAs will be removed making them easier to understand.

Cash ISAs from previous years can be transferred into stocks and shares ISAs to encourage investors to diversify.

Child Trust Fund accounts can roll over into ISAs to encourage younger people to maintain a savings habit.

ISAs have been a tremendous success; 17 million people in the UK have invested £220 billion in the last eight years in them. (Source: Ed Balls, MP press release).
While some were hoping to see a more generous rise than £200 on a stocks and shares ISA, they continue to make a great investment opportunity, this is because they are:

Tax Efficient - the proceeds and growth of ISA investments are free of income and capital gains tax* and do not need to be included on tax returns
Flexible - ISAs can hold a wide range of high-quality, long-term investments such as mutual funds, shares, bonds and cash. They are easy to buy and transfer, including the option to invest monthly or in a lump sum
Accessible - which enables investors to access their money at any time and there are no time limits for keeping an ISA
They are ideal for both growth and income investors and can help pay off the mortgage, meet private education fees and supplement retirement income.

Income investors may want to use their ISA allowance to invest in gilts or corporate bonds. Gilts are issued by the government as a means of raising money, while corporate bonds are issued by large companies. The advantage is they know exactly what income they will get each year. The potential drawback is if they hold the bond until maturity there may be no capital growth.

A popular alternative are fixed income funds - which would allow investors to buy into a professionally managed, diversified range of bonds therefore spreading their risk.

For them the stockmarket may offer the best potential, by buying into quality companies and holding the shares for the long term and reinvesting dividends.

An alternative to buying and holding shares directly are mutual funds. These offer a diversified and professionally managed exposure to the stockmarket. The fund managers invest in a wide range of companies, industries, countries, regions etc to help spread the risk.

*The exception is the 10% tax credit charged on dividends, which cannot be reclaimed.

For more information please contact me at:
Paul Spillane CertPFS
Edward Jones Ltd
20 Elbow Lane
Formby
01704 833158