01 Sep 2014

New Individual Savings Account (NISA)

New Individual Savings Account (NISA)

Gordon Leslie, Financial Advisor, discusses the types of New Individual Savings Account (NISA) in-depth and explains why each one is beneficial. 

Gordon Leslie, Financial Advisor, discusses the types of New Individual Savings Account (NISA) in-depth and explains why each one is beneficial. 

A New Individual Savings Account (NISA) is not an investment in its own right.  A NISA is a “wrapper” which you can shelter savings and investments from tax.  Within a NISA you pay no capital gains tax and no further tax on income or interest.  NISA’s also do not need to be declared on a tax return.

Any UK resident aged 18 or over (16 for Cash NISA’s) can invest.  There is no upper age limit and savings are accessible at any time.

For tax year 2014/2015, under new rules which came into effect on 1 July 2014, you can invest up to £15,000.  You can now also split your NISA allowance as you wish, between a Cash NISA and a Stocks and Shares NISA.  Before, you could only save up to half the ISA allowance in a Cash ISA.

You can withdraw monies whenever you wish from a NISA, however once withdrawn, you cannot put money back into a NISA without it counting as a new subscription.

Cash or Shares?

Whether you choose a Cash NISA or a Stocks & Shares NISA will depend on whether you are a saver or an investor.  Many people will be a bit of both.

Cash

Cash should form the foundation of your overall portfolio – unlike stock market investments, cash savings can offer immediate access and your capital is guaranteed not to fall in value.  However should interest rates fail to keep pace with inflation, the purchasing power of the capital would be eroded over time.

Cash NISA’s operate just like a normal savings account except the interest is tax-free.  Interest rates will vary, so shop around for the best deal using the best-buy tables which you can find in the press or online.

Gilts & Corporate Bonds

Fixed interest securities, such as gilts or corporate bonds, are the one type of investment where investors know at the outset, under the right conditions, what their income and capital will be.  These securities are essentially a loan to institutions who wish to raise finance.  The term of the loan and repayment value is set at the beginning, together with a predetermined rate of interest payable.  Plainly, the security of the institution borrowing the money is of prime importance.  There is none more secure than the UK government, which literally used to edge the loan certificates in gold, giving rise to the term “gilt-edged securities”.  The stronger the institution issuing the loan, the lower the return it needs to offer to attract finance. Conversely, less creditworthy companies and governments need to pay more to attract finance and therefore offer higher returns to offset the higher risks.  

Shares

Shares allow individuals to share in the profits and growth of companies.  They are generally more volatile than corporate bonds.  However, in the past they have offered the best potential for capital growth and a growing income from dividends.

The risk and return from individual shares varies.  Some companies, water companies for example, with a secure customer base and steady dividend and record, may trade in a fairly narrow range.  Shares in technology companies offer significantly higher growth potential but carry more risk.  Likewise, shares listed in emergency markets will typically rise, and fall, more dramatically than UK shares.  In addition, changes in currency exchange rates will affect the value of overseas shares and this is not a factor with UK shares.

Within a Stocks and Shares NISA you can hold these investments directly or hold funds which invest in these asset classes.

Funds, such as unit trusts and OEICs, allow you to entrust the choice of the underlying investments to a professional fund manager.  They pool your money with that of other investors, which enables you to spread your investments – and your risk – across dozens of different shares, bonds, gilts or property.  Funds also allow you easier access to shares listed on foreign stock markets.

Important Investment Notes

All stock market investments can fall in value as well as rise, so you could get back less than you invest and you should regard them as long term investments.  This guide is based on our understanding of the current tax rules and regulations.  Whilst the tax benefits we refer to are those that currently apply, they can change over time and their value will depend on your circumstances.


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