ISAs - Tax benefits

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The Isa was launched in 1999 as a way to encourage people to build up savings without being taxed on the increasing value of their pot. So what exactly is the deal when it comes to tax and Isas?

Any income or capital gains (increase in value) from your Isa are not currently included in your personal tax liability.

• You don't pay any tax on any interest, dividends or bonuses you make from your Isa.

  However, since April 2004, Isa holders don't recceive the tax credit on dividends from UK companies. There is already no tax credit on dividends from companies outside the UK.

• If you have a stocks and shares Isa and it increases in value, you will not have to pay Capital Gains Tax (CGT) on the increase.

• You do not have to include your Isa on your UK tax form.

Ask your Isa manager about the tax benefits of the Isa you are going to buy. Also, find out what the overall costs involved are.

If you are a non-taxpayer, there are not many advantages of saving through an Isa. You can already receover tax-free interest from savings accounts, or claim back any tax that was deducted.

The Inland Revenue has information about Isas and proposed changes to the system from 2008. Find out more atwww.hmrc.gov.uk.