The biggest decision you now face is deciding which of the new investments is best for you and whether to divide up your allocation in a mini- or a maxi-ISA (see page 7). If you want to invest as much as you can into equities, a maxi-ISA could be the best option. Now you can invest up to pounds 7,000 this year if you are particularly keen to extend your portfolio to hitherto off-limit areas such as America and the Far East, which are widely tipped as the next growth sectors.
It may also be worth taking a look at investment trusts, which have recently been out of favour with investors, not least because many did not qualify for inclusion in PEPs.
A third of investment trusts have high overseas exposure compared with only a quarter of unit trusts, so many more are now eligible. They can be good buys now because many are trading at a large discount.
Jeremy Tigue, at Foreign & Colonial, says its flagship Foreign & Colonial Investment Trust, and the Smaller Companies Investment Trust and Pacific Investment Trust now qualify for full tax-free ISA status. He says: "With the Pacific IT, you have the whole area of the market to invest in. The Asian market was dreadful in 1997 and 1998 and Japan has been depressed for 10 years but there are faint signs of recovery. If you believe in those, it could be an attractive way to invest."
The Foreign & Colonial Investment Trust and Smaller Companies fund still have a reasonably high proportion invested in the UK and European Union markets but less than the old qualifying rules. What they do have is around 25 per cent invested in the United States and, according to Mr Tigue, the biggest mistake fund managers have made in the 1990s is to be underweight in this sector.
But there is no point in investing outside Europe just because you can. Graham Bates, of Bates & Partners, of Leeds - an independent financial adviser - says that you need to assess your investment aims first. He says: "Although the rest of the world is open to ISAs, most overseas funds tend to be growth-orientated with little or no income yield. The benefits for most people will be limited, since even outside an ISA the profits can be offset against personal capital gains tax allowances." (Currently pounds 7,100 for the 1999/2000 tax year.)
But he likes the Fidelity American unit trust if you are considering long-term growth, willing to take a medium-to-high risk and are prepared for the occasional bumpy ride. Fidelity South-east Asia could also provide long-term investors with a strong return.
You can also hold direct share holdings in an ISA but you are not allowed to put any windfall shares from building society or insurance company demutualisations into an ISA, nor do shares from privatisation issues from utility companies qualify for the tax-free treatment. And high-risk shares, such as those listed on the Alternative Investment Market (AIM) cannot be wrapped in an ISA because they already qualify for other tax breaks.
The AITC and Association of Unit Trusts and Investment Funds (Autif) provide free factsheets on investing in ISAs. Call the AITC on 0171-431 5222 or the Unit Trust information service on 0181-207 1361, or visit the website at www.investmentfunds.org.uk
TOP ISA FUNDS
You can put up to pounds 7,000 this year into the following top-performing funds - none of them qualified for full PEP status.
Fidelity American Special Situations
GA North American Growth
Edinburgh North Am Cl B
Edinburgh North Am Cl A
Threadneedle Am Select Growth 2
Foreign & Colonial Inv Trust
Foreign & Colonial Smaller Cos
Foreign & Colonial Pacific
Jupiter Primadona Growth