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Tax Treatment Income and capital gains are all tax-free. A charge of 20% is applied to interest on any cash invested in a stocks and shares component. ACT (advance corporation tax) used to be charged to companies when they paid dividends, however, this ended on 6th April, 1999.When this was applicable, the receiver of a dividend was entitled to a tax credit which reflected the ACT payable by companies. This tax credit was in order to lower the amount of tax paid by the receiver of a dividend. However since April 1999, companies are no longer subject to paying ACT. To begin with dividends were accompanied with a “notional” 10% tax credit however this was gradually phased out between 6th April 1999 and 5th April 2004 thus reducing the tax-free status. Therefore, the savings account used for income rather than capital growth is far less tax efficient when placed in an equity fund, whereas a savings account based on other assets (bonds etc.) remains tax-free in relation to both income and capital growth. CAT standards This stands for Charges, Access and Terms. CAT standards were introduced by the Government in 1999 to make ISAs easier to understand and result in lower costs, therefore appealing to more investors. Plenty of products comply with the Cat standard however this does not guarantee the investor that they are being advised on the best type of investment for them. Charges ISA cash component: The only charge that applies to this type is when transferring to another provider otherwise it is free of charges. Collective funds in Stocks and Shares: Initial and yearly charges are often applied as though outside an ISA. Self Select Stocks and Shares ISAs: As these are provided by stockbrokers a brokerage fee again comparable to those outside an ISA, often applies. On top of this, the stockbroker may also apply their own fee by way of administrational costs. Fund Supermarkets These are ISA providing organizations which give admittance to a large variety of collective investments provided by a range of fund managers. They enable investors to create one diverse ISA so that they can transfer their investments between funds without having to alter their provider. They are becoming increasingly popular as they provide the investor with a variety of options. They are paid by the fund managers and therefore there is also no charge to the investor. |
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