One of our goals during ISA Week 2011, and in general, is to illustrate the point that any individual can develop their understanding of financial markets to a degree that allows them to take advantage of vehicles such as a tax-efficient Individual Savings Account.
But the fact of the matter is ISAs are not for everyone. Non-UK citizens, globe trotters, young investors and parents would be right to double-check if they are allowed to invest through an ISA. In Part III of our week-long feature on ISA misconceptions, we address some of the confusions related to ISA eligibility.
See Part I to lift the veil on some fundamental confusions and Part II to clear up taxation questions.
1. I can’t invest in ISAs, I’m foreign
Not necessarily. Any resident or anyone ordinarily resident in the UK for tax purposes has access to an ISA vehicle. Residency for tax purposes is fairly straightforward to establish – if you are in the UK for 183 days or more in a tax year, you are a UK tax resident.
There are, however, some exceptions which may complicate matters. For example, you may be counted as a UK resident if you regularly spend three months in the country in a number of consecutive years. In addition, the concept of ordinary residency is not defined in legislation. It basically means you normally live in the UK, but the precise meaning of these terms is subject to interpretation by the HMRC.
A word of caution, the HMRC has both an ISA help line and a residency help line and our empirical studies have shown that some patience is required should you wish to resort to either.
2. I can invest in ISAs if I work abroad, as long as I am a British citizen
Similar to the point made above, if you are born in Britain but are no longer a resident of the country for tax purposes, you cannot take advantage of ISA benefits. The only exception is if you work for the crown, as a diplomat or as part of the armed forces, for example, from an overseas location.
If you start saving or investing in an ISA in the UK and then go abroad, you cannot continue putting money into the ISA. However, you can keep your ISA and you will still get tax relief on investments held in the ISA. When you return, you can start putting money in again (subject to the normal annual limits).
3.I’m too young to invest in an ISA
This concept is usually at the forefront of freshly-employed individuals’ minds, i.e. those whose general propensity to save is low. To that we say – it’s never too early to step up your money management habits. Furthermore, being a young investor means you have a long way to go before retirement and are therefore much more flexible in terms of taking on risk.
That said, you need to be at least 15. Between the ages of 16 and 18, adolescents can save up to £5,100 in a cash ISA until they turn 18. Once 18, they can broaden their investment horizons by also taking advantage of Stocks and Shares ISAs.
For generous parents or those wanting to build up savings for a child younger than 15, the government is soon to introduce the so-called Junior ISAs. Funds placed in these tax-efficient wrapper will be owned by the child, available once he or she reaches 18, and exclusive of tax in the same way that ‘adult’ ISAs are.. Junior ISAs are being created in lieu of the state’s Child Trust Fund scheme, which was discontinued this January. The government has not yet clarified what is the maximum amount which can be contributed towards a Junior ISA.
