Cash ISA to Equity ISA
- One of two types of individual savings accounts, a cash ISA, usually offered by banks and building societies, pays interest tax-free, and may offer a higher interest rate in return for locking money up for a period. Stocks and shares ISAs may contain mutual funds, bonds with more than five years to maturity and equity traded on a recognised investment exchange. This excludes companies with a primary listing on London's Alternative Investment Market (AIM).
- In the 2010-11 tax-year, it is possible to invest a maximum of £10,200 in ISAs. This can either all be invested in a stocks and shares ISA, or can be split between a cash ISA and stocks and shares ISA. No more than £5,100 can be invested in a cash ISA in any tax year. These limits are to rise in line with the Retail Prices Index measure of inflation from April 2011.
- Investments in an ISA are not subject to additional taxes such as capital gains tax (CGT). Cash interest is paid tax-free. UK dividends are paid net of a 10 percent tax credit, which is not reclaimable, nor are foreign withholding taxes. Assets within an ISA and the income received from them do not need to be declared on a personal tax return.
- It is not possible to transfer the assets from a stocks and shares ISA into a cash ISA, but cash ISAs can be transferred to stocks and shares without losing the wrapper. Most cash ISAs are offered by banks and building societies. Most stocks and shares ISAs are offered by independent financial advisors and stockbrokers. If you wish to transfer funds, approach your selected stocks and shares ISA provider, and a representative will arrange the transfer. This can take several weeks. Do not close your cash ISA and remove funds, or you will permanently lose the tax advantages.