Money: What is proposed (but it could change)

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The Independent Online
Maximum annual investment in an ISA will be pounds 5,000. The maximum total holding will be pounds 50,000. Investments will be tax exempt and can be withdrawn at any time without losing tax privileges.

Up to pounds 1,000 a year can be invested in a cash deposit with a bank or building society, or a European-authorised institution which accepts deposits in the UK, in money market funds with a UK-authorised unit trust, in National Savings products which are not already tax-free, and in deposits with credit unions.

Up to pounds 1,000 in premiums can be paid to an insurance-linked savings plan taken out after April 1999 (but not to a pre-existing policy).

The balance can be invested in shares, corporate bonds issued by companies based anywhere in the world, UK-authorised unit trusts, UK open-ended investment companies, UK-approved investment trusts, units or shares in UCITs, but not unlisted shares or shares traded on the Alternative Investment Market (AIM).

All money invested in an ISA in any one year must go to just one account manager, who could be a supermarket or store like M&S, or a specialist financial services company like Virgin, as well as a bank, building society, friendly society, insurance company or stock broker. They may sub-contract the management of funds to specialist managers.

Investments in each subsequent year can go to a different manager, and existing accounts can also be transferred in their entirety (but not in part) to a new manager, as with existing PEPs.

The maximum lifetime limit on investments in ISA will be limited to pounds 50,000 although there is no limit to the amount of future growth which the ISA can generate.

No new Tessas or PEPs can be sold after 5 April 1999.

Up to pounds 50,000 can be transferred into an ISA out of existing PEPs and maturing Tessas but once the threshold has been reached no further investments are allowed. Investments which are not transferred to an ISA will lose their tax-free status, but existing Tessas will be allowed to mature and PEPs to retain tax-free status for six months, until October 6 1999, which is also the base date for any subsequent CGT liabilities when former PEP assets are sold.

Money and assets in an ISA can be withdrawn and topped up again when required without effecting tax-free status.

There will be no minimum investment. Accounts can be opened in supermarkets and retail stores, banks, building societies, insurance companies and with independent financial advisers, allowing instant access for small investors.

As a special incentive the government will, for the first five years only, give a 10 per cent tax credit on dividend income from UK shares in an ISA. This restores half the current 20 per cent PEPs tax credit which the Chancellor said, in the Budget, would be withdrawn in 1999.

Other tax-free products, including index-linked bonds and savings certificates, are not affected by the ISA rules.

Investors holding shares and trusts not now in a PEP will probably have to sell and buy back to get into an ISA, incurring charges and stamp duty.

ISA managers can charge for their services, but are unlikely to charge for holding cash savings or insurance policies.

The proposals are up for discussion and comment until January 31 next year.