Tax advantages
ISAs allow investors to hold cash, equities, and other
investments in a wrapper that is free from UK income tax
on interest or dividends and also free from UK capital gains
tax.
In more detail, the tax benefits are as follows:
The tax advantages need to be balanced against additional
charges made by some ISA managers.
Freedom from tax is of most value to those who pay higher
rate tax on their income and capital gains. The importance
of this tax benefit is slightly reduced for the majority
of investors who are unlikely to pay capital gains tax and
who pay basic rate tax. There is generally no benefit to
non-taxpayers in holding an ISA unless their status is likely
to change in the future.
The benefits of tax freedom are likely to manifest themselves
after a number of years. The longer the duration, the greater
the difference in performance vis a vis comparable non-ISA
investments.
