ISA's are one of the most tax efficient investment vehicles available under current legislation. They are available in two different formats, MAXI and MINI ISA's and replaced Personal Equity Plans in 1999.

Maxi ISA
You can invest up to a maximum total of £7000 in each Tax Year into a maxi ISA. This can be invested into the following categories:

Stocks and shares component (unit trust)
A maximum of £7000, in each Tax Year, can be invested in to this component of a maxi ISA. A unit trust is a collection of shares available through Investment Houses such as Newton Fund Managers Limited and is managed by a fund manager. You purchase units in the unit trust which has a bid price. The bid price fluctuates depending on how well the shares within your Unit Trust perform. This is less risky than direct share purchase because the unit trust can compose of over 50 different shares from around the world, spreading the risk of your money, as opposed to purchasing a couple of different shares in the same region. The expression stocks and shares extends to include Unit Trusts, Investment Trusts and OEICS.

Cash component
A maximum of £3000, in each Tax Year, can be invested into this component of a maxi ISA. A cash ISA is predominately a bank account, which usually offers higher Interest Rates than normal current accounts. Unlike normal current accounts interest received on cash ISA's are free from Income Tax. It is important to read the terms and conditions from each cash ISA provider before investing your money.

Insurance Component
A maximum of £1000, in each Tax Year, can be invested to provide life assurance in this component of a maxi ISA

Maximum total investment
Please note that the maximum total investment of a Maxi ISA is £7000 regardless of the components it is made up of, and it must be invested through the same ISA provider.

Mini ISA

You can invest up to a maximum of £7000 in each Tax Year into a mini ISA. This can be invested into the following categories:

Stocks and shares component
a maximum of £3000, in each Tax Year, can be invested in to this component of a mini ISA.

Cash Component
A maximum of £3000, in each Tax Year, can be invested in to this component of a mini ISA.

Insurance Component
A maximum of £1000, in each Tax Year, can be invested in to this component of a mini ISA.

Please note that each component of a mini ISA can be invested through different providers in any given Tax Year, however you can not have two Stocks and Shares, Cash or Insurance mini ISA's through two different providers in the same Tax Year.

Tax Benefits of both Maxi and Mini ISA's
Individual Savings Accounts carry very valuable tax efficient benefits, which include:

• Free from Income Tax
• Free from Capital Gains Tax
• No tax is payable on encashment.
• There is no minimum holding period - access to money whenever you like.

Capital Gains Tax (CGT)
Tax payable on gains, for example profit on investments or a second property. CGT is only payable on gains which have been sold in that Tax Year on profits over the annual exemption. The annual exemption currently stands at £8200 for individuals and £4100 for trusts (Tax Year 04/05). Further relief may be possible through taper relief and indexation. Individuals net gains are treated as the top slice of the individuals taxable income and are taxed accordingly.

Unit Trusts
These are a collection of shares known as a fund, normally between 50 - 80 different shares, which are expertly managed by a fund manager. Individuals purchase units in the fund (collection of shares). The units have a bid price which fluctuates up or down depending on the funds performance. One company can have several different funds.

Bid Price
The bid price is the cost of each unit within the fund.

Unit Linked Funds
A collection of shares within a fund which is managed by a fund manager. The shares within each fund usually have a common factor, for example all the shares in the fund may be for Technology and Telecom companies or they may all be shares in US companies.

With Profits Funds
With Profit Funds perform based upon the financial strength and profit of the Insurance company the individuals policy is held through.

Investment Trusts
This is the oldest form of pooled investment. An Investment Trust is a public limited company which invests in other companies to make profits for their own shareholders.

Guaranteed Growth Bond
This is an investment which guarantees a set level of growth over a set number of years providing the stockmarket it is linked to grows by a certain percentage over that time period.

Guaranteed Income Bond
This is an investment which guarantees to provide policy holders with a set level of income per annum over a set level of years providing the stockmarket it is linked to grows by a certain percentage over that time period.