What is a NISA?
Any individual, who is an income tax payer and has some money to save or invest, should know about New Individual Savings Accounts (NISAs). NISAs offer an attractive tax-favoured shelter to anyone aged 18 or over (16 or over for cash NISAs). With standard bank and building society savings accounts taxpayers normally have to pay tax on any interest earned on their money. The tax is deducted from the interest before it is paid out, reducing the amount received. Similarly, tax must be paid on the income and profits made from investments in the stock market like company shares or unit trusts.
However, NISAs serve as a kind of ‘wrapper’ to protect savings from tax, allowing individuals to invest monies up to maximum limits (by way of regular or single amounts) each tax year in a range of savings and investments and pay no personal tax at all on the income and/or profits received.
The main NISA benefits are:
- No personal tax (income or capital gains) on any investments in an NISA.
- Income and gains from NISAs do not need to be included in tax returns.
- Money can be withdrawn from a NISA at any time without losing the tax breaks.
NISA Maximum Contribution Limits
The current NISA maximum contribution limit is shown below:
Overall Maximum £15,000
The basics of how NISAs 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, up to the overall annual limit of £15,000 with either 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 NISAs 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.
Any investment returns received will be largely tax free, although the tax credit on dividend income received by the fund is not recoverable. However, cash and fixed interest funds are deemed to receive interest rather than dividends and a 20% tax credit is recoverable. There is no personal tax on any income taken and no capital gains tax on any gains made. On death, the value of your ISAs will be included in your estate for Inheritance Tax purposes.