Savers holding a total of £110 billion in cash Individual Savings Accounts (ISAs) will from next year be able to transfer them into stock market-based ISAs without leaving these tax shelters. The new rules to simplify ISAs will come into force in April 2008.

Provided you can keep your money invested for the long term, share-based investments could produce higher returns than cash. However, as an investor you have to be prepared to ride out the peaks and troughs of the stock market. You also need to consider that switching to equity-based investments could mean that when you want to use the money there might be a dip in the market and you could get back less.

However, the reward for weathering choppy stock-market waters is the potential for both capital and dividend growth. So, if you require income over the long term, equity income funds, for example, could provide a greater potential to increase dividend income and offset the effects of inflation. It goes without saying that your capital may remain constant when held on deposit, although equity income funds can offer potential for capital growth.

Anyone deciding to move money from cash ISAs into the equity version should seek advice before making their decision, as the Government will not allow transfers in the opposite direction under the new rules.

Equity ISAs are not tax-free, but they do offer tax benefits. Growth on investments held within an equity ISA is not subject to capital gains tax, charged at an individual's top rate of tax on gains above the £8,800 annual allowance.
As a simple rule, if you cannot sleep at night worrying about your investments, you will probably not wish to move out of your cash ISAs.

If you would like to find out more, please e-mail or contact us for further information.

The value of units can go down as well as up. Past performance is no guarantee of future returns. Levels and bases of, and reliefs from, taxation are subject to change.
Article date: March 2007